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