Question

Ikea and Pottery Barn are the only competitors in the low-cost trendy furniture market. At the beginning of 2013 Ikea announces that they will cut all prices by 25%, significantly below Pottery Barn’s prices. As a result, Pottery Barn quickly begins to lose market share, and realizes that if Ikea does not increase their prices Pottery Barn will go out of business. Pottery Barn brings an antitrust suit against Ikea, alleging that they are engaging in predatory pricing in violation of Section 2 of the Sherman Act. What fact would be most detrimental to Pottery Barn’s case?

Answer 1

Given Facts and their implication;

1. Ikea and Pottery Barn are only competitors. This implies that it is neither a monopoly market nor a perfect competitition were firms are price takers.

2. Ikea announces a price cut of 25%. This imples that Ikea is not combining or conspiring with any other firm to facilitate price reduction.

The Antitrust suit filed against Ikea under Section 2 of the Sherman Act states that any person who make an attempt or does monopolize a market by combining or conspiring with any other party will be seen as a guilty.

Therefore, the fact that would be most detrimental to the Pottery Barn's case is the lack of evidence that Ikea has reduced the prices under any conspirancy with the third party, since Ikea and Pottery Barn are only competitors.