GE Case Flashcards
Westinghouse & GE case
Westinghouse and GE were producing turbines in 1950’s and 60’s. For 20 years
they maintained monopoly prices without explicit agreement (tacit collusion).
This regime was broken once for 2 years when two European firms entered the
market. They started to price undercut both Westinghouse and GE. This lead
to price war and lowering of the prices. After 2 years Westinghouse and GE
lobbied the law according to which foreign companies could not sell turbines in
the US. This lead to the re-establishment of the monopoly collusion pricing. In
the end, US antitrust authorities stopped all this in 70’s.
The model of this situation is infinitely repeated Bertrand duopoly. In this game
two firm collude to price their goods at monopoly level. No one firm wants to
deviate from this because the strategy of the other firm is to start the price war
once deviation happens. Thus deviation leads to the competitive pricing and
zero profit
