Competition or Predation? Consumer Coordination, Strategic Pricing and Price Floors in Network Markets

29 Pages Posted: 27 Jun 2005

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

Abstract

Although network effects can make predation more likely to succeed, we find that the leading anti-predation rules may lower or raise efficiency and consumer welfare in network markets. We find that: (a) the extensive debates about the 'correct' measure of cost on which to base price floors are unlikely to be productive; (b) the Ordover-Willig rule that is widely thought to be correct in theory but difficult to apply in practice is, in fact, incorrect in theory; and (c) efficient price floors would have to depend on consumer expectations and coordination processes that are unlikely to be observable in practice.

Suggested Citation

Farrell, Joseph and Katz, Michael L., Competition or Predation? Consumer Coordination, Strategic Pricing and Price Floors in Network Markets. Journal of Industrial Economics, Vol. 53, No. 2, pp. 203-231, June 2005, Available at SSRN: https://ssrn.com/abstract=739387

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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