Sacrifice tests for predation in a dynamic pricing model: Ordover and Willig (1981) and Cabral and Riordan (1997) meet Ericson and Pakes (1995)

David Besanko, Ulrich Doraszelski and Yaroslav Kryukov

International Journal of Industrial Organization, 2020, vol. 70, issue C

Abstract: To detect the presence of predatory pricing, antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival. Because predatory pricing is an inherently dynamic phenomenon, we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry-dynamics framework along the lines of Ericson and Pakes (1995). In particular, we adapt the definitions of predation due to Ordover and Willig (1981) and Cabral and Riordan (1997) to this setting and construct the corresponding sacrifice tests.

Keywords: Industry dynamics; Markov perfect equilibrium; Predatory pricing; Sacrifice tests (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:70:y:2020:i:c:s016771871930044x

DOI: 10.1016/j.ijindorg.2019.102522

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