Predation and its rate of return: the sugar industry, 1887–1914
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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Volume (Year): 37 (2006)
Issue (Month): 1 (03)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
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- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
- 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.
- 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.
- 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.
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