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The Learning Curve, Market Dominance, and Predatory Pricing

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  • Cabral, Luis M B
  • Riordan, Michael H

Abstract

Strategic implications of the learning curve hypothesis are analyzed in the context of a price-setting, differentiated duopoly selling to a sequence of heterogeneous buyers with uncertain demands. A unique Markov perfect equilibrium is characterized and sufficient conditions are provided for market dominance to be self-reinforcing. Increasing market dominance implies that learning is privately disadvantageous. Finally, introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis. Copyright 1994 by The Econometric Society.

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  • Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
  • Handle: RePEc:ecm:emetrp:v:62:y:1994:i:5:p:1115-40
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    1. Bierens, Herman J, 1990. "A Consistent Conditional Moment Test of Functional Form," Econometrica, Econometric Society, vol. 58(6), pages 1443-1458, November.
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