[Edexcel Economics A 2015] With reference to the information provided, examine two pricing strategies an oligopolist like Sony may use to maximise profits (8).

As an oligopoly is when a group of firms have the majority of the market share, they gain price-setting power. One policy they can use is limit-pricing. In lowering the price of their goods, oligopolies are able to undercut competitors, decreasing their marginal revenue until it is below their average costs, for which it is then not-profitable for the firm to stay in business, and the firm exits the market. This further disincentivises potential firms from entering the market, enabling a firm like Sony to maintain its X% market share.
However, this assumes an oligopolist has significantly more capital and is able to handle losses more so than their competitors. Yet, in a market that is oligopolistic yet not contestable, it is unlikely there are many smaller firms, and therefore these competitors are likely other oligopolists. Therefore, if Sony were to engage in a price-war with Microsoft in the console market, it is unlikely anytime soon Microsoft would be forced to exit the market due to high long-run profits and capital, and instead both firms would make less profit. This policy requires a contestable oligopoly, which due to high intellectual property barriers and cost of video game production, it is unlikely this is the case for Sony and Microsoft.
Another potential policy is loss-leadership. This is the setting of prices below average costs due to price-setting power, yet their complements at a much higher price. In lowering price, demand increases, and an oligopolist has more consumers. If the goods have a strong complement however, such as a PS4 and PS4 games, these now become inelastic and an oligopolist can increase the price of these complements, and therefore increase total revenue overall. However, because they are strong complements, consumers may simply be put off a cheap good by the higher prices of its complement as complements have joint-demand.
However, strategies used to increase the demand for the cheap good in the first place to offset this effect, such as viral campaigns for PS4 games, could be used anyway at higher prices. Therefore, only if there is a significant difference in the elasticities of the complements would it be worth using this method. However, as video games can only be played for their specific console, for a console-owner they are very inelastic. Therefore in this scenario, loss-leadership is a good idea.