The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?
David Besanko, Ulrich Doraszelski, Yaroslav Kryukov
American Economic Review · 2014 · Volume 104 · Issue 3
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.
Keywords
Firm Behavior: Theory, Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection, Search, Learning, Information and Knowledge, Communication, Belief, Antitrust Law, Oligopoly and Other Imperfect Markets, Monopolization, Horizontal Anticompetitive Practices
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