In Britain price competition among book- shops has been suppressed for over 100 years by the Net Book Agreement (of 1900), which was aimed at preventing price wars. However, in October 1991 Waterstone and Company began cutting book prices at its 85 British shops. According to Richard Barker, Waterstone's operations director, the decision to reduce the price of about 40 titles by about 25% was due to price cuts by Dillons, Waterstone's principal rival.
a. According to the president of Britain's Publishers Association, the price-cutting was "an enormous pity" that will "damage many booksellers who operate on very slim margins." Does this mean that pricecutting of this sort is contrary to the public interest?
b. Why would Dillons want to cut prices? Under what circumstances would this be a good strategy? Under what circumstances would it be a mistake?