Chapter 22 Predatory Pricing: Rare Like a Unicorn?
Isaac and Smith's (1985) single market design did not produce predatory pricing. Such pricing was observed in the single multi-market session reported in Harrison (1988), but this pattern did not emerge in three replications run by Goeree and Gomez (1998). In a simpler design with prices being chosen after entry decisions are made and announced, the incumbents knew when to enjoy monopoly profits and when to punish entrants. This setup resulted in reliable predation in most markets. The lesson that predatory pricing experiments provide to date depends on an assessment of the realism of the design characteristics. What is clear is that predatory prices can be generated reliably, both in stylized signaling games and in rich market settings. © 2008 Elsevier B.V. All rights reserved.
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