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On the Existence of Predatory Pricing: An Experimental Study of Reputation and Entry Deterrence in the Chain-Store Game

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  • Yun Joo Jung
  • John H. Kagel
  • Dan Levin

Abstract

A single monopolist plays a sequence of eight periods against a series of different entrants. There are two types of monopolists, "weak" monopolists whose single-period best response is to acquiesce after entry, and "strong" monopolists whose dominant strategy is to fight entry. Data show high levels of predatory pricing, defined as weak monopolists fighting all entrants in early periods, both with and without experimenter-induced strong monopolists. We reject a number of predictions of the asymmetric-information, sequential equilibrium model of Kreps and Wilson (1982) and find important deviations from more general sequential equilibrium models as well.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 25 (1994)
Issue (Month): 1 (Spring)
Pages: 72-93

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Handle: RePEc:rje:randje:v:25:y:1994:i:spring:p:72-93

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Cited by:
  1. Ananish Chaudhuri, 1997. "The Ratchet Principle in a Principal Agent Game with Unknown Costs: An Experimental Analysis," Departmental Working Papers 199608, Rutgers University, Department of Economics.
  2. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine.
  3. Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CPI Journal, Competition Policy International, vol. 6.
  4. Teck-Hua Ho & Xuanming Su, 2009. "Peer-Induced Fairness in Games," American Economic Review, American Economic Association, vol. 99(5), pages 2022-49, December.
  5. William Tracy, 2014. "Paradox Lost: The Evolution of Strategies in Selten’s Chain Store Game," Computational Economics, Society for Computational Economics, vol. 43(1), pages 83-103, January.
  6. Abbink, K. & Sadrieh, A. & Zamir, S., 2002. "Fairness, Public Good, and Emotional Aspects of Punishment Behavior," Discussion Paper 2002-38, Tilburg University, Center for Economic Research.

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