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Competition Or Predation? Consumer Coordination, Strategic Pricing And Price Floors In Network Markets


  • Joseph Farrell
  • Michael L. Katz


Although network effects can make predation more likely to succeed, we find that the leading anti-predation rules may lower or raise efficiency and consumer welfare in network markets. We find that: (a) the extensive debates about the 'correct' measure of cost on which to base price floors are unlikely to be productive; (b) the Ordover-Willig rule that is widely thought to be correct in theory but difficult to apply in practice is, in fact, incorrect in theory; and (c) efficient price floors would have to depend on consumer expectations and coordination processes that are unlikely to be observable in practice. Copyright Blackwell Publishing Ltd. 2005.

Suggested Citation

  • Joseph Farrell & Michael L. Katz, 2005. "Competition Or Predation? Consumer Coordination, Strategic Pricing And Price Floors In Network Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 203-231, June.
  • Handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:203-231

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    References listed on IDEAS

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    Cited by:

    1. Colla, Paolo & Garcia, Filomena, 2016. "Technology adoption: Hysteresis and absence of lock-in," Economics Letters, Elsevier, vol. 141(C), pages 107-111.
    2. Layne-Farrar, Anne & Llobet, Gerard, 2014. "Moving beyond simple examples: Assessing the incremental value rule within standards," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 57-69.
    3. Chiara Fumagalli & Massimo Motta, 2013. "A Simple Theory of Predation," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 595-631.
    4. Cerquera Dussán, Daniel, 2006. "R&D incentives, compatibility and network externalities," ZEW Discussion Papers 06-093, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Fabio Lamantia & Mario Pezzino, 2017. "Dynamic analysis of discontinuous best response with innovation," The School of Economics Discussion Paper Series 1708, Economics, The University of Manchester.
    6. repec:oup:jcomle:v:3:y:2007:i:2:p:243-279. is not listed on IDEAS
    7. Hung-Ken Chien & C. Y. Cyrus Chu, 2008. "Sale or Lease? Durable-Goods Monopoly with Network Effects," Marketing Science, INFORMS, vol. 27(6), pages 1012-1019, 11-12.
    8. Cerquera Dussán, Daniel, 2007. "Durable Goods, Innovation and Network Externalities," ZEW Discussion Papers 07-086, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Cerquera Dussán, Daniel, 2006. "Dynamic R&D incentives with network externalities," ZEW Discussion Papers 06-094, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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