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Competition or Predation? Schumpeterian Rivalry in Network Markets

Author

Listed:
  • Joseph Farrell

    (University of California, Berkeley)

  • Michael Katz

    (University of California, Berkeley)

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

  • Joseph Farrell & Michael Katz, 2002. "Competition or Predation? Schumpeterian Rivalry in Network Markets," Industrial Organization 0201003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0201003
    Note: 36 pages, Acrobat .pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    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. Gerard Llobet & Michael Manove, 2006. "Network Size and Network Capture," Working Papers wp2006_0604, CEMFI.
    3. 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.
    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. 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.
    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.

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    More about this item

    JEL classification:

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

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