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The Learning Curve, Market Dominance and Predatory Pricing

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  • Cabral, L.
  • Riordan, M.

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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Cabral, L. & Riordan, M., 1992. "The Learning Curve, Market Dominance and Predatory Pricing," Papers 39, Boston University - Industry Studies Programme.
  • Handle: RePEc:fth:bostin:39
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    References listed on IDEAS

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    1. Maskin, Eric & Tirole, Jean, 1987. "A theory of dynamic oligopoly, III : Cournot competition," European Economic Review, Elsevier, vol. 31(4), pages 947-968, June.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    3. Rosenthal, Robert W., 1982. "A dynamic model of duopoly with customer loyalties," Journal of Economic Theory, Elsevier, vol. 27(1), pages 69-76, June.
    4. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    5. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    6. Rosenthal, Robert W, 1986. "Dynamic Duopoly with Incomplete Customer Loyalties," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 399-406, June.
    7. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large Fixed Costs," Econometrica, Econometric Society, vol. 56(3), pages 549-569, May.
    8. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
    9. 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.
    10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    11. Christopher Budd & Christopher Harris & John Vickers, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 543-573.
    12. Chen, Yongmin, 1994. "Conflicting interests in information disclosure and short-term orientation of firms," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 211-225, June.
    13. Kamien, Morton I. & Tauman, Yair & Zamir, Shmuel, 1990. "On the value of information in a strategic conflict," Games and Economic Behavior, Elsevier, vol. 2(2), pages 129-153, June.
    14. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
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    Keywords

    prices ; enterprises ; economic equilibrium;

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