Date of this Version
American Economic Review
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 predation-like behavior, however, a fair amount of competition for the market is eliminated.
Originally published in American Economic Review © 2014 by the American Economic Association.
Besanko, D., Doraszelski, U., & Kryukov, Y. (2014). The Economics of Predation: What Drives Pricing When There is Learning-by-Doing?. American Economic Review, 104 (3), 868-897. http://dx.doi.org/10.1257/aer.104.3.868
Date Posted: 15 June 2018
This document has been peer reviewed.