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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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Author Info
Yun Joo Jung
John H. Kagel
Dan Levin

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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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Publisher 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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  1. Potters, J & Winden, F. van, 1995. "Comparitive statics of a signaling game : an experimental study," Discussion Paper 126, Tilburg University, Center for Economic Research. [Downloadable!]
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  2. Colin Camerer & Teck H Ho & Juin-Kuan Chong & Keith Weigelt, 2003. "Strategic teaching and equilibrium models of repeated trust and entry games," Levine's Bibliography 506439000000000506, UCLA Department of Economics. [Downloadable!]
  3. Gary E Bolton & Axel Ockenfels, 1997. "A Theory of Equity, Reciprocity, and Competition," Levine's Working Paper Archive 1889, David K. Levine. [Downloadable!]
  4. Gary E. Bolton & Axel Ockenfels, 2005. "The Influence of Information Externalities on the Value of Reputation Building - An Experiment," Working Paper Series in Economics 17, University of Cologne, Department of Economics. [Downloadable!]
  5. Gary E Bolton & Axel Ockenfels, 2007. "Information Value and Externalities in Reputation Building - An Experimental Study," Working Paper Series in Economics 35, University of Cologne, Department of Economics, revised 01 Aug 2008. [Downloadable!]
  6. Abbink, K. & Sadrieh, A. & Zamir, S., 2002. "Fairness, public good, and emotional aspects of punishment behavior," Discussion Paper 38, Tilburg University, Center for Economic Research. [Downloadable!]
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  7. Juin-Kuan Chong & Colin F. Camerer & Teck H. Ho, 2005. "A learning-based model of repeated games with incomplete information," Levine's Bibliography 666156000000000537, UCLA Department of Economics. [Downloadable!]
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  8. Teck-Hua Ho & Juanjuan Zhang, 2005. "Does Format of Pricing Contract Matter?," Econometrics 0504008, EconWPA. [Downloadable!]
  9. Camerer, Colin F. & Ho, Teck H. & Chong, Juin-Kuan., 2000. "Sophisticated EWA Learning and Strategic Teaching in Repeated Games," Working Papers 1087, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  10. José Ramón Uriarte Ayo, 2003. "A Model of Evolutionay Drift," IKERLANAK 200301, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I. [Downloadable!]
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