Publication: The existence and rationale of predatory pricing strategy in the network industry : an experimental approach.
Issued Date
2007
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Language
eng
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Mahidol University
Bibliographic Citation
Chiang Mai University Journal of Social Sciences and Humanities. Vol. 1, No.1 (2007), 49-68
Suggested Citation
Yingyot Chiaravutthi. The existence and rationale of predatory pricing strategy in the network industry : an experimental approach.. Chiang Mai University Journal of Social Sciences and Humanities. Vol. 1, No.1 (2007), 49-68. Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/9956
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Title
The existence and rationale of predatory pricing strategy in the network industry : an experimental approach.
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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 at the
University of South Carolina’s Beam Lab, based on a seven-period and onemarket
design. Twenty-two subjects were recruited and assigned a role as seller.
They were paired together randomly and played the game for seven rounds.
Pairs of subjects were re-matched between each round to avoid repeated game
effects. Buyers were simulated and had different, pre-programmed 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 subgame
perfect Nash equilibrium is for sellers to engage in predatory pricing
during the first four periods and price higher during the last three periods of a
round. The observations strongly support the presence of predatory pricing,
especially in later rounds. Another finding is that price offers during the last
three periods were lower than predicted by sub-game perfect Nash equilibrium
due to the fact that the predatory pricing strategy was not effective in
eliminating competitors.