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COMPETITION OR PREDATION? CONSUMER COORDINATION, STRATEGIC PRICING AND PRICE FLOORS IN NETWORK MARKETS *
Author(s) -
Farrell Joseph,
Katz Michael L.
Publication year - 2005
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.0022-1821.2005.00252.x
Subject(s) - competition (biology) , predation , predatory pricing , microeconomics , economics , consumer welfare , strategic complements , welfare , ecology , market economy , biology , monopoly
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.