A Simple Theory of Predation

26 Pages Posted: 26 Aug 2009

See all articles by Chiara Fumagalli

Chiara Fumagalli

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Massimo Motta

Universitat Pompeu Fabra

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

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

JEL Classification: K21, L12, L40

Suggested Citation

Fumagalli, Chiara and Motta, Massimo, A Simple Theory of Predation (July 2009). CEPR Discussion Paper No. DP7372. Available at SSRN: https://ssrn.com/abstract=1462001

Chiara Fumagalli

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5311 (Phone)
+39 02 5836 5318 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Massimo Motta (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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