Publication: Predatory pricing with the existence of network externalities in the laboratory.
Issued Date
2007
Resource Type
Language
eng
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Mahidol University
Bibliographic Citation
Information Economics and Policy. Vol. 19, No. 2 (2007), 151-170
Suggested Citation
Yingyot Chiaravutthi. Predatory pricing with the existence of network externalities in the laboratory.. Information Economics and Policy. Vol. 19, No. 2 (2007), 151-170. Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/9901
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Title
Predatory pricing with the existence of network externalities in the laboratory.
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Abstract
This paper reports on data taken from an experiment confirming the existence of
predatory pricing in the presence of network externalities, where the technology
of one firm (seller A) is superior to the other (seller B). Subjects were recruited
to play the game with computer simulated buyers. They made entry decisions as
well as both price and quantity decisions in a posted-offer market institution
scenario. The Nash equilibrium is that seller A will predate and that seller B
will not predate. The experiment looked at both a single-market design and a
multi-market design, the latter allowing the reputation of superior sellers to
develop, and also providing inferior sellers with an opportunity to escape to
another market. The observations from both designs overwhelmingly support
the presence of predatory pricing, although a single-market design is not as
effective at deterring potential entrants, when compared to a multi-market
design.