In search of predatory pricing strategy in the network industry : a multiple period experiment.
Issued Date
2007
Resource Type
Language
eng
Rights
Mahidol University
Suggested Citation
Yingyot Chiaravutthi (2007). In search of predatory pricing strategy in the network industry : a multiple period experiment.. Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/35030
Title
In search of predatory pricing strategy in the network industry : a multiple period experiment.
Author(s)
Other Contributor(s)
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, 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 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.
Description
Research Seminar on Research for MUIC Development, Mahidol University International College, Thailand. January 19, 2007