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Predation Under Perfect Information

17 Pages Posted: 17 Mar 2010 Last revised: 7 Apr 2010

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration

Date Written: March 12, 2010

Abstract

In an oligopoly configuration characterized by high barriers to (re-)entry, a finite horizon, perfect information about demand and costs and the presence of three identical firms, we show that two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately, after which the predators can enjoy higher profits, even if they do not raise their price. Predatory prices are thus observed on the equilibrium path and the predators end up earning more than in the best Bertrand (or even, collusive) equilibrium with three firms.

Keywords: predation, predatory pricing, collusion, dynamic game, Bertrand competition

JEL Classification: D43, L13, L41

Suggested Citation

Argenton, Cédric, Predation Under Perfect Information (March 12, 2010). TILEC Discussion Paper No. 2010-013. Available at SSRN: https://ssrn.com/abstract=1569493 or http://dx.doi.org/10.2139/ssrn.1569493

Cédric Argenton (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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