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Predation and Its Rate of Return: The Sugar Industry, 1887-1914

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  • David Genesove
  • Wallace P. Mullin

Abstract

We study entry into the American sugar refining industry before World War I. We show that the price wars following two major entry episodes were predatory. Our proof is twofold: by direct comparison of price to marginal cost, and by construction of predicted competitive price cost margins that we show to exceed observed margins. We argue that predation occurred only when the relative cost of it to the dominant firm was small, and that it was most probably used to deter future capacity additions. It was also used to lower the purchase price of preexisting firms after one entry episode.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6032.

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Date of creation: May 1997
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Publication status: published as Genesove, David and Wallace P. Mullin. "Predation And Its Rate Of Return: The Sugar Industry, 1887-1914," Rand Journal of Economics, 2006, v37(1,Spring), 47-69.
Handle: RePEc:nbr:nberwo:6032

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  1. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
  2. Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-40, September.
  3. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  4. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn.
  5. Hanes, Christopher, 1993. "The Development of Nominal Wage Rigidity in the Late 19th Century," American Economic Review, American Economic Association, vol. 83(4), pages 732-56, September.
  6. Marvin B. Lieberman, 1987. "Postentry Investment and Market Structure in the Chemical Processing Industries," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 533-549, Winter.
  7. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  9. Garth Saloner, 1987. "Predation, Mergers, and Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 165-186, Summer.
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Cited by:
  1. Michiel van Leuvensteijn, 2008. "The Boone-indicator: Identifying different regimes of competition for the American Sugar Refining Company 1890-1914," Working Papers 08-37, Utrecht School of Economics.
  2. Stephen Martin, 2010. "Economic Arguments in U.S. Antitrust and EU Competition Policy: Two Roads Diverged," Purdue University Economics Working Papers 1257, Purdue University, Department of Economics.
  3. John Asker & Heski Bar-Isaac, 2012. "Vertical Practices Facilitating Exclusion," Working Papers 12-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-86, February.

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