Exclusionary Pricing by State-Owned Enterprises: Experimental Evidence

State ownership is increasingly positioned as a policy tool for governments towards strategic autonomy and sustainability transition. A possible side effect is the creation or strengthening of dominant state-owned enterprises (SOEs), which theory suggests may engage in exclusionary (predatory) pricing. Disagreement remains, however, over the price thresholds for which exclusionary pricing should be unlawful. We run a laboratory duopoly with a dominant incumbent and a non-dominant entrant across three treatments: a private baseline market; a mixed market with an inefficient SOE incumbent (Mixed–Efficiency); and a mixed market where the SOE incumbent pursues social welfare (Mixed–Social). We measure exclusionary pricing below variable cost, below own break-even level, and above the competitor’s break-even level. We find pervasive exclusionary pricing followed by the competitor's exit in both private and mixed markets. Moreover, after exclusion monopoly pricing by the remaining competitor lowers consumer surplus and total surplus. This finding is remarkable given the professed rarity of exclusionary pricing in previous experimental research. Above break-even exclusion appears in Mixed–Social; below-cost exclusion occurs in all treatments. We observe mirrored outcomes across mixed markets: in Mixed–Efficiency the more efficient private entrant withstands exclusion and eventually displaces the SOE, whereas in Mixed–Social the SOE’s social welfare objective function supports more aggressive pricing that prompts entrant exit. These results argue for more vigilant monitoring of SOEs’ competition-law compliance and for entry-safeguarding policies when creating or strengthening dominant SOEs.