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American Economic Review Vol. 104 No. 3 2014

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

David Besanko1; Ulrich Doraszelski2; Yaroslav Kryukov3

1 Kellogg School of Management, Northwestern University, 2001 Sheridan Road Evanston, IL 60208 (e-mail: ) · 2 Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104 (e-mail: ) · 3 Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213 (e-mail: )

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.

DOI
10.1257/aer.104.3.868
Volume
104
Issue
3
Pages
868-897
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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