The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?

David Besanko, Ulrich Doraszelski and Yaroslav Kryukov

American Economic Review, 2014, vol. 104, issue 3, 868-97

Abstract: We formally characterize predatory pricing in a modern industry-dynamics framework that endogenizes competitive advantage and industry structure. As an illustrative example we focus on learning-by-doing. To disentangle predatory pricing from mere competition for efficiency on a learning curve we decompose the equilibrium pricing condition. We show that forcing firms to ignore the predatory incentives in setting their prices can have a large impact and that this impact stems from eliminating equilibria with predation-like behavior. Along with the predation-like behavior, however, a fair amount of competition for the market is eliminated.

JEL-codes: D21 D43 D83 K21 L13 L41 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.3.868
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Citations: View citations in EconPapers (35)

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