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The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?

Author

Listed:
  • David Besanko
  • Ulrich Doraszelski
  • Yaroslav Kryukov

Abstract

We formally characterize predatory pricing in a modern industry-dynamics framework that endogenizes competitive advantage and industry structure. As an illustrative example we focus on learning-by-doing. To disentangle predatory pricing from mere competition for efficiency on a learning curve we decompose the equilibrium pricing condition. We show that forcing firms to ignore the predatory incentives in setting their prices can have a large impact and that this impact stems from eliminating equilibria with predation-like behavior. Along with the predation-like behavior, however, a fair amount of competition for the market is eliminated.

Suggested Citation

  • David Besanko & Ulrich Doraszelski & Yaroslav Kryukov, 2014. "The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?," American Economic Review, American Economic Association, vol. 104(3), pages 868-897, March.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:3:p:868-97
    Note: DOI: 10.1257/aer.104.3.868
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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