Sacrifice tests for predation in a dynamic pricing model: Ordover and Willig (1981) and Cabral and Riordan (1997) meet Ericson and Pakes (1995)

摘要

To detect the presence of predatory pricing, antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival. Because predatory pricing is an inherently dynamic phenomenon, we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry-dynamics framework along the lines of Ericson and Pakes (1995). In particular, we adapt the definitions of predation due to Ordover and Willig (1981) and Cabral and Riordan (1997) to this setting and construct the corresponding sacrifice tests. (C) 2019 Elsevier B.V. All rights reserved.