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Exclusionary pricing in markets with interdependent demands

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  • Vasconcelos, Helder

Abstract

In this paper I use a simple model to study the competitive effects of exclusionary pricing involving two markets related by a positive demand externality. It is shown that below-cost pricing on one of these markets can allow an incumbent firm to exclude (from both markets) a more efficient rival which does not have a customer base yet. However, when exclusion occurs, it is always socially optimal. In addition, under some circumstances, there is inefficient entry: the entrant wins both markets while the social optimum would require the incumbent to win them.

Suggested Citation

  • Vasconcelos, Helder, 2015. "Exclusionary pricing in markets with interdependent demands," Economics Letters, Elsevier, vol. 134(C), pages 24-28.
    • Handle: RePEc:eee:ecolet:v:134:y:2015:i:c:p:24-28
    DOI: 10.1016/j.econlet.2015.06.005
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Liliane Karlinger & Massimo Motta, 2012. "Exclusionary Pricing When Scale Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 60(1), pages 75-103, March.
    3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    4. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
    5. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
    6. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    7. Vasconcelos, Helder, 2015. "Is exclusionary pricing anticompetitive in two-sided markets?," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 1-10.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Exclusionary pricing; Demand externalities; Entry;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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