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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.

Suggested Citation

  • Yun Joo Jung & John H. Kagel & Dan Levin, 1994. "On the Existence of Predatory Pricing: An Experimental Study of Reputation and Entry Deterrence in the Chain-Store Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 72-93, Spring.
    • Handle: RePEc:rje:randje:v:25:y:1994:i:spring:p:72-93
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