This paper investigates whether predatory price cutting reduces a trust's cost of acquiring its competitors. A variant of the Litzenberger-Rao valuation model is estimated with the expenditures for 43 rival firms purchased by the old American Tobacco Company between 1891 and 1906. The coefficient estimates indicate that, ceteris paribus, alleged predation significantly lowered the acquisition costs of the tobacco trust both for asserted victims and, through reputation effects, for competitors that sold out peacefully. Although qualified by data limitations, these results support the classical view of predatory pricing as a systematic business practice.

This paper investigates whether predatory price cutting reduces a trust's cost of acquiring its competitors. A variant of the Litzenberger-Rao valuation model is estimated with the expenditures for 43 rival firms purchased by the old American Tobacco Company between 1891 and 1906. The coefficient estimates indicate that, ceteris paribus, alleged predation significantly lowered the acquisition costs of the tobacco trust both for asserted victims and, through reputation effects, for competitors that sold out peacefully. Although qualified by data limitations, these results support the classical view of predatory pricing as a systematic business practice.