A Simple Theory of Predation

Chiara Fumagalli and Massimo Motta ()

No 437, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We propose a simple theory of predatory pricing, based on incumbency advantages, scale economies and sequential buyers (or markets). The prey needs to reach a critical scale to be successful. The incumbent (or predator) has an initial advantage and is ready to make losses on earlier buyers so as to deprive the prey of the scale the latter needs, thus making monopoly profits on later buyers. Several extensions are considered, including cases where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterized by common costs. Conditions under which predation may (or not) take place in actual cases are also discussed.

Date: 2012
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Related works:
Journal Article: A Simple Theory of Predation (2013)
Working Paper: A Simple Theory of Predation (2010)
Working Paper: A Simple Theory of Predation (2010)
Working Paper: A Simple Theory of Predation (2010)
Working Paper: A Simple Theory of Predation (2009)
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