Publication: In search of predatory pricing strategy in the network industry: a multiple period experiment.
Issued Date
2006
Resource Type
Language
eng
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Mahidol University
Rights Holder(s)
Yala Rajabhat University
Bibliographic Citation
Journal of Yala Rajabhat University. Vol. 1, (2006).77-88
Suggested Citation
Yingyot Chiaravutthi. In search of predatory pricing strategy in the network industry: a multiple period experiment.. Journal of Yala Rajabhat University. Vol. 1, (2006).77-88. Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/9890
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Title
In search of predatory pricing strategy in the network industry: a multiple period experiment.
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Abstract
This paper reports data from an experiment confirming the existence of
predatory pricing in the presence of network externalities when the
technology of competing firms are identical. An experiment was
conducted based on a seven-period and one-market design. Subjects were
recruited and assigned a role as seller before they were paired together
randomly and played the game for two rounds. Sellers were classified
into superior and inferior sellers where sellers’ superiority came from
buyers’ willingness to pay. Buyers were simulated and had different, preprogrammed
preferences over the goods offered by two sellers. In each
period, subjects had to make an entry decision and a price decision in a
posted offer market institution. The sub-game perfect Nash equilibrium
is for superior seller to engage in predatory pricing and for inferior seller
not to enter the market. The observations strongly support the presence
of predatory pricing. Additionally, the predatory pricing strategy was
quite effective in driving rivals out. Unexpectedly, predation was
evidently pursued by both superior and inferior sellers, and inferior sellers
also had a chance to dominate the market. It can be concluded that
predatory pricing strategy exists in the market that exhibits network
externalities, and this strategy is quite powerful in elminating
competitors.