IDEAS home Printed from https://ideas.repec.org/p/cdl/econwp/qt5xw2d98g.html
   My bibliography  Save this paper

Competition or Predation? Schumpeterian Rivalry in Network Markets

Author

Listed:
  • Farrell, Joseph
  • Katz, Michael

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.

Suggested Citation

  • Farrell, Joseph & Katz, Michael, 2001. "Competition or Predation? Schumpeterian Rivalry in Network Markets," Department of Economics, Working Paper Series qt5xw2d98g, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt5xw2d98g
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/5xw2d98g.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    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. 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 822-841, August.
    4. 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.
    5. 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 514-526, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joao Carlos Correia Leitao, 2004. "Optimal Divisionalization for Selling Networks of Cable Television Services," Industrial Organization 0403004, University Library of Munich, Germany.
    2. Kai Hüschelrath & Jürgen Weigand, 2013. "Predation enforcement options: an evaluation in a Cournot framework," European Journal of Law and Economics, Springer, vol. 35(2), pages 241-272, April.
    3. 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.
    4. Edlin, Aaron S. & Farrell, Joseph, 2002. "The American Airlines Case: A Chance to Clarify Predation Policy," Department of Economics, Working Paper Series qt0wx7c4zf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    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.
    6. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    2. 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.
    3. repec:zbw:bofrdp:urn:nbn:fi:bof-201511261452 is not listed on IDEAS
    4. repec:zbw:bofrdp:2015_023 is not listed on IDEAS
    5. Cabral, Luis, 2014. "Staggered Contracts, Market Power, and Welfare," CEPR Discussion Papers 10095, C.E.P.R. Discussion Papers.
    6. Mariotto, Carlotta & Verdier, Marianne, 2015. "Innovation and competition in Internet and mobile banking: an industrial organization perspective," Bank of Finland Research Discussion Papers 23/2015, Bank of Finland.
    7. Mariotto, Carlotta & Verdier, Marianne, 2015. "Innovation and competition in Internet and mobile banking: an industrial organization perspective," Research Discussion Papers 23/2015, Bank of Finland.
    8. repec:bof:bofrdp:urn:nbn:fi:bof-201511261452 is not listed on IDEAS
    9. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    10. Carlotta MARIOTTO & Marianne VERDIER, 2015. "Innovation and Competition in Internet and Mobile Banking: an Industrial Organization Perspective," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(99), pages 129-146, 3rd quart.
    11. Colla, Paolo & Garcia, Filomena, 2016. "Technology adoption: Hysteresis and absence of lock-in," Economics Letters, Elsevier, vol. 141(C), pages 107-111.
    12. Luís Cabral, 2018. "We’re Number 1: Price Wars for Market Share Leadership," Management Science, INFORMS, vol. 64(5), pages 2013-2030, May.
    13. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.
    14. Fumagalli, Chiara & Motta, Massimo, 2020. "Tying in evolving industries, when future entry cannot be deterred," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    15. Choi, Jay Pil & Jeon, Doh-Shin, 2016. "A Leverage Theory of Tying in Two-Sided Markets," TSE Working Papers 16-689, Toulouse School of Economics (TSE), revised Oct 2019.
    16. Pérez, Carlos J. & Ponce, Carlos J., 2015. "Disruption costs, learning by doing, and technology adoption," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 64-75.
    17. Luís Cabral, 2011. "Dynamic Price Competition with Network Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 83-111.
    18. Heli Koski & Tobias Kretschmer, 2004. "Entry, Standards and Competition: Firm Strategies and the Diffusion of Mobile Telephony," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(1), pages 89-113, November.
    19. Luis M. B. Cabral, 2000. "Dynamic Competition with No Efficiency Effect," Econometric Society World Congress 2000 Contributed Papers 0512, Econometric Society.
    20. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485, September.
    21. Persson, Lars & Seiler, Thomas, 2022. "Entrepreneurial optimism and creative destruction," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    22. Motta, Massimo & Peitz, Martin, 2021. "Big tech mergers," Information Economics and Policy, Elsevier, vol. 54(C).
    23. Bronwyn H. Hall, 2004. "Innovation and Diffusion," NBER Working Papers 10212, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    predation; predatory behavior; network effects; price floors; competition;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:econwp:qt5xw2d98g. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/ibbrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.