A Simple Theory of Predation
AbstractWe propose a simple theory of predatory pricing, based on incumbency advantages, scale economies and sequential buyers (or markets). The prey needs to reach a critical scale to be successful. The incumbent (or predator) has an initial advantage and is ready to make losses on earlier buyers so as to deprive the prey of the scale the latter needs, thus making monopoly profits on later buyers. Several extensions are considered, including cases where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterized by common costs. Conditions under which predation may take place in actual cases are also discussed.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 255.
Date of creation: 03 Jul 2010
Date of revision:
Publication status: Published with the title 'A Simple Theory of Predation', The Journal of Law and Economics, 56, 595-631, 2013.
Other versions of this item:
- Chiara Fumagalli & Massimo Motta, 2010. "A Simple Theory of Predation," Working Papers 2010.15, Fondazione Eni Enrico Mattei.
- Chiara Fumagalli & Massimo Motta, 2012. "A Simple Theory of Predation," Working Papers 437, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Fumagalli, Chiara & Motta, Massimo, 2009. "A Simple Theory of Predation," CEPR Discussion Papers 7372, C.E.P.R. Discussion Papers.
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-17 (All new papers)
- NEP-COM-2010-07-17 (Industrial Competition)
- NEP-IND-2010-07-17 (Industrial Organization)
- NEP-MIC-2010-07-17 (Microeconomics)
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