Exclusionary pricing in markets with interdependent demands

Helder Vasconcelos

Economics Letters, 2015, vol. 134, issue C, 24-28

Abstract: In this paper I use a simple model to study the competitive effects of exclusionary pricing involving two markets related by a positive demand externality. It is shown that below-cost pricing on one of these markets can allow an incumbent firm to exclude (from both markets) a more efficient rival which does not have a customer base yet. However, when exclusion occurs, it is always socially optimal. In addition, under some circumstances, there is inefficient entry: the entrant wins both markets while the social optimum would require the incumbent to win them.

Keywords: Exclusionary pricing; Demand externalities; Entry (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:134:y:2015:i:c:p:24-28

DOI: 10.1016/j.econlet.2015.06.005

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