Competition or Predation? Schumpeterian Rivalry in Network Markets

UC Berkeley Competition Policy Center Working Paper No. CPC01-23

37 Pages Posted: 27 Feb 2004

See all articles by Joseph Farrell

Joseph Farrell

University of California, Berkeley - Department of Economics

Michael L. Katz

University of California, Berkeley - Department of Economics; Haas School of Business

Date Written: August 2001

Abstract

We explore the logic of predation and rules designed to prevent it in markets subject to network effects. Although, as many have informally argued, predatory behavior is plausibly more likely to succeed in such markets, we find that it is particularly hard to intervene in network markets in ways that improve welfare. We find that imposition of the leading proposals for rules against predatory pricing may lower or raise consumer welfare, depending on conditions that may be difficult to identify in practice.

Keywords: market structure, monopoly, networks, PB

JEL Classification: L12, L15, L41

Suggested Citation

Farrell, Joseph and Katz, Michael L., Competition or Predation? Schumpeterian Rivalry in Network Markets (August 2001). UC Berkeley Competition Policy Center Working Paper No. CPC01-23, Available at SSRN: https://ssrn.com/abstract=507084 or http://dx.doi.org/10.2139/ssrn.507084

Joseph Farrell (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

Michael L. Katz

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

Haas School of Business ( email )

Berkeley, CA 94720
United States

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