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A Simple Theory of Predation

Chiara Fumagalli () and Massimo Motta ()

No 7372, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a simple theory of predatory pricing, based on scale economies and sequential buyers (or markets). The entrant (or prey) needs to reach a critical scale to be successful. The incumbent (or predator) is ready to make losses on earlier buyers so as to deprive the prey of the scale it needs, thus making monopoly profits on later buyers. Several extensions are considered, including markets where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterised by common costs. Conditions under which predation may take place in actual cases are also discussed.

Keywords: Anticompetitive behaviour; Antitrust; Below-cost pricing; Exclusion (search for similar items in EconPapers)
JEL-codes: K21 L12 L40 (search for similar items in EconPapers)
Date: 2009-07
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Related works:
Journal Article: A Simple Theory of Predation (2013) Downloads
Working Paper: A Simple Theory of Predation (2012) Downloads
Working Paper: A Simple Theory of Predation (2010) Downloads
Working Paper: A Simple Theory of Predation (2010) Downloads
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