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Predation and its rate of return: the sugar industry, 1887–1914
Author(s) -
Genesove David,
Mullin Wallace P.
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00003.x
Subject(s) - predation , sugar , sugar industry , economics , agricultural economics , ecology , chemistry , biology , food science
We show that the price wars following two major entry episodes were predatory. Our proof is twofold: by direct comparison of price to marginal cost, and by construction of a lower bound to predicted competitive price‐cost margins that we show to exceed observed margins. Predation occurred only when its relative cost to the dominant firm, the American Sugar Refining Company (ASRC), was small. Its most clear effect was to lower the acquisition price of entrants and small incumbents. It may also have deterred future capacity additions and raised ASRC's share of industry profits. Predation operated by strengthening ASRC's reputation as a willing predator .