Book contents
- Frontmatter
- Contents
- Preface
- Acknowledgments
- Part I The Formative Years
- Part II Institutions and Market Performance
- Part III Public Goods
- Part IV Auctions and Institutional Design
- PART V Industrial Organization
- Introduction
- 32 An Empirical Study of Decentralized Institutions of Monopoly Restraint
- 33 Natural Monopoly and Contested Markets: Some Experimental Results
- 34 In Search of Predatory Pricing
- Part VI Perspectives on Economics
34 - In Search of Predatory Pricing
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Preface
- Acknowledgments
- Part I The Formative Years
- Part II Institutions and Market Performance
- Part III Public Goods
- Part IV Auctions and Institutional Design
- PART V Industrial Organization
- Introduction
- 32 An Empirical Study of Decentralized Institutions of Monopoly Restraint
- 33 Natural Monopoly and Contested Markets: Some Experimental Results
- 34 In Search of Predatory Pricing
- Part VI Perspectives on Economics
Summary
Can predatory pricing be reproduced in a laboratory environment? We report research motivated by this objective. We began with conditions that, based on the literature, appeared to combine the features this literature has suggested are favorable to the emergence of predation. Next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories. Of 10 experiments, none evidenced predatory behavior; most supported the dominant firm theory. The second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency.
Overview of Research Procedure and Results
Is predatory pricing an observable phenomenon that can be induced in a laboratory environment? We report research motivated by the maintained hypothesis that if such behavior is a human trait we ought to be able to observe it in the laboratory. Our procedure was first to specify a set of structural conditions that appeared to us to combine those features that were favorable to the emergence of predatory behavior: (1) two firms—one large, one small; (2) scale economies, with the larger firm having a cost advantage over the smaller (but with the smaller firm's production required for market efficiency); (3) a “deep pocket” possessed by the advantaged firm; and (4) sunk entry costs tending to discourage reentry when such costs must be incurred.
- Type
- Chapter
- Information
- Papers in Experimental Economics , pp. 754 - 780Publisher: Cambridge University PressPrint publication year: 1991