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Competition Or Predation? Consumer Coordination, Strategic Pricing And Price Floors In Network Markets

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  • Joseph Farrell
  • Michael L. Katz

Abstract

Although network effects can make predation more likely to succeed, we find that the leading anti‐predation rules may lower or raise efficiency and consumer welfare in network markets. We find that: (a) the extensive debates about the ‘correct’ measure of cost on which to base price floors are unlikely to be productive; (b) the Ordover‐Willig rule that is widely thought to be correct in theory but difficult to apply in practice is, in fact, incorrect in theory; and (c) efficient price floors would have to depend on consumer expectations and coordination processes that are unlikely to be observable in practice.

Suggested Citation

  • Joseph Farrell & Michael L. Katz, 2005. "Competition Or Predation? Consumer Coordination, Strategic Pricing And Price Floors In Network Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 203-231, June.
    • Handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:203-231
    DOI: 10.1111/j.0022-1821.2005.00252.x
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    Cited by:

    1. Besanko, David & Doraszelski, Ulrich & Kryukov, Yaroslav, 2020. "Sacrifice tests for predation in a dynamic pricing model: Ordover and Willig (1981) and Cabral and Riordan (1997) meet Ericson and Pakes (1995)," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    2. Colla, Paolo & Garcia, Filomena, 2016. "Technology adoption: Hysteresis and absence of lock-in," Economics Letters, Elsevier, vol. 141(C), pages 107-111.
    3. Chiara Fumagalli & Massimo Motta, 2013. "A Simple Theory of Predation," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 595-631.
    4. Layne-Farrar, Anne & Llobet, Gerard, 2014. "Moving beyond simple examples: Assessing the incremental value rule within standards," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 57-69.
    5. Lamantia, Fabio & Pezzino, Mario & Tramontana, Fabio, 2018. "Dynamic analysis of discontinuous best response with innovation," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 120-133.
    6. Andrew Eckert & Tilman Klumpp & Xuejuan Su, 2017. "An Equilibrium Selection Theory of Monopolization," Southern Economic Journal, John Wiley & Sons, vol. 83(4), pages 1012-1037, April.
    7. Cerquera Dussán, Daniel, 2007. "Durable Goods, Innovation and Network Externalities," ZEW Discussion Papers 07-086, ZEW - Leibniz Centre for European Economic Research.
    8. Michael L. Katz, 2019. "Multisided Platforms, Big Data, and a Little Antitrust Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(4), pages 695-716, June.
    9. Imke Reimers & Joel Waldfogel, 2017. "Throwing the Books at Them: Amazon's Puzzling Long Run Pricing Strategy," Southern Economic Journal, John Wiley & Sons, vol. 83(4), pages 869-885, April.
    10. Katz, Michael L., 2021. "Big Tech mergers: Innovation, competition for the market, and the acquisition of emerging competitors," Information Economics and Policy, Elsevier, vol. 54(C).
    11. Laura Ferrari Bravo & Paolo Siciliani, 2007. "Exclusionary Pricing And Consumers Harm: The European Commission'S Practice In The Dsl Market," Journal of Competition Law and Economics, Oxford University Press, vol. 3(2), pages 243-279.
    12. Hung-Ken Chien & C. Y. Cyrus Chu, 2008. "Sale or Lease? Durable-Goods Monopoly with Network Effects," Marketing Science, INFORMS, vol. 27(6), pages 1012-1019, 11-12.
    13. N. M. Rozanova, 2021. "Methodological Issues of Modern Competition Policy," Studies on Russian Economic Development, Springer, vol. 32(5), pages 492-498, September.
    14. Cerquera Dussán, Daniel, 2006. "Dynamic R&D incentives with network externalities," ZEW Discussion Papers 06-094, ZEW - Leibniz Centre for European Economic Research.
    15. Cerquera Dussán, Daniel, 2006. "R&D incentives, compatibility and network externalities," ZEW Discussion Papers 06-093, ZEW - Leibniz Centre for European Economic Research.

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