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American Economic Review: Vol. 104 No. 3 (March 2014)

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The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?

Article Citation

Besanko, David, Ulrich Doraszelski, and Yaroslav Kryukov. 2014. "The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?" American Economic Review, 104(3): 868-97.

DOI: 10.1257/aer.104.3.868

Abstract

We formally characterize predatory pricing in a modern industry-dynamics framework that endogenizes competitive advantage and industry structure. As an illustrative example we focus on learning-by-doing. To disentangle predatory pricing from mere competition for efficiency on a learning curve we decompose the equilibrium pricing condition. We show that forcing firms to ignore the predatory incentives in setting their prices can have a large impact and that this impact stems from eliminating equilibria with predation-like behavior. Along with the predation-like behavior, however, a fair amount of competition for the market is eliminated.

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Online Appendix (445.08 KB) | Download Data Set (12.72 MB) | Author Disclosure Statement(s) (251.62 KB)

Authors

Besanko, David (Northwestern U)
Doraszelski, Ulrich (U PA)
Kryukov, Yaroslav (Carnegie Mellon U)

JEL Classifications

D21: Firm Behavior: Theory
D43: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
D83: Search; Learning; Information and Knowledge; Communication; Belief
K21: Antitrust Law
L13: Oligopoly and Other Imperfect Markets
L41: Monopolization; Horizontal Anticompetitive Practices


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