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Competition or Predation? Schumpeterian Rivalry in Network Markets

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Author Info

  • Joseph Farrell

    (University of California, Berkeley)

  • Michael Katz

    (University of California, Berkeley)

Abstract

We explore the logic of predation and rules designed to prevent it in markets subject to network effects. Although, as many have informally argued, predatory behavior is plausibly more likely to succeed in such markets, we find that it is particularly hard to intervene in network markets in ways that improve welfare. We find that imposition of the leading proposals for rules against predatory pricing may lower or raise consumer welfare, depending on conditions that may be difficult to identify in practice.

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File URL: http://128.118.178.162/eps/io/papers/0201/0201003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0201003.

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Length: 36 pages
Date of creation: 04 Jan 2002
Date of revision:
Handle: RePEc:wpa:wuwpio:0201003

Note: 36 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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  1. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," University of Chicago - George G. Stigler Center for Study of Economy and State 145, Chicago - Center for Study of Economy and State.
  2. Ordover, Janusz A. & Saloner, Garth, 1989. "Predation, monopolization, and antitrust," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 9, pages 537-596 Elsevier.
  3. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
  4. Bolton, P. & Brodley, J.F. & Riordan, M.H., 1999. "Predatory Pricing: Strategic Theory and Legal Policy," Discussion Paper 1999-82, Tilburg University, Center for Economic Research.
  5. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
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Cited by:
  1. Koski, Heli & Sierimo, Carolina, 2003. "Entry and Exit in the ICT Sector - New Markets, New Industrial Dynamics?," Discussion Papers 847, The Research Institute of the Finnish Economy.
  2. Gerard Llobet & Michael Manove, 2006. "Network Size and Network Capture," Boston University - Department of Economics - Working Papers Series WP2006-007, Boston University - Department of Economics.
  3. Aaron S. Edlin & Joseph Farrell, 2004. "The American Airlines Case: A Chance to Clarify Predation Policy," Law and Economics 0401003, EconWPA.
  4. Joao Carlos Correia Leitao, 2004. "Optimal Divisionalization for Selling Networks of Cable Television Services," Industrial Organization 0403004, EconWPA.
  5. Gunnar Alexandersson & Staffan Hultén, 2006. "Predatory bidding in competitive tenders: A Swedish case study," European Journal of Law and Economics, Springer, vol. 22(1), pages 73-94, July.

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