Strategic Entry Deterrence: Pioneer Foods And The Bread Cartel

Joseph Harrington studies whether cartel members can sustain cooperation over time under the threat of free entry in an infinitely repeated game and shows that firms can deter entry by credibly threatening to meet any entry with an episode of below-cost pricing. In this article, we provide direct evidence of predation through below-cost pricing in the cartelized South African bread industry by comparing prices to average variable costs. We find evidence of episodes of predatory pricing. While the Competition Commission case was settled before adjudication by the Competition Tribunal, Pioneer Foods admitted to the strong evidence of predatory intent and that its conduct impeded small independent bakeries from expanding within the market and competing effectively as part of the settlement agreement.