Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets
Volume: Volume 30, No. 1
Issue: Spring 1999
Pages: pp. 22-43
Authors: Leslie M. Marx and Greg Shaffer
Title: Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets
Abstract: We show that below-cost pricing can arise in intermediate goods markets when a monopolist retailer negotiates sequentially with two suppliers of substitute products. Below-cost pricing by one supplier allows the retailer to extract rents from the second supplier. Thus, the retailer and one supplier can increase their joint profit at the expense of the second supplier. We consider the welfare implications of below-cost pricing (welfare can increase or decrease as a result of below-cost pricing) and provide suggestions for when the courts should view below-cost pricing in intermediate goods markets as anticompetitive and when they should not.
JEL Classification
Market Structure, Firm Strategy, and Market Performance: Monopoly Monopolization Strategies cartels collusion
(L120)
Market Structure and Pricing: Monopoly (D420)
Market Structure: Industrial Organization and Corporate Strategy
(6110)
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures
(0226)