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Predation and Its Rate of Return: The Sugar Industry, 1887Ð1914

Author

Listed:
  • David Genesove

    (Hebrew Univesity of Jerusalem)

  • Wallace Mullin

    (George Washington University)

Abstract

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.

Suggested Citation

  • David Genesove & Wallace Mullin, 2006. "Predation and Its Rate of Return: The Sugar Industry, 1887Ð1914," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 47-69, Spring.
    • Handle: RePEc:rje:randje:v:37:y:2006:1:p:47-69
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    Cited by:

    1. Stephen Martin, 2015. "Areeda–Turner and the Treatment of Exclusionary Pricing under U.S. Antitrust and EU Competition Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(3), pages 229-252, May.
    2. Rey, Patrick & Spiegel, Yossi & Stahl, Konrad, 2022. "A Dynamic Model of Predation," TSE Working Papers 22-1375, Toulouse School of Economics (TSE), revised Apr 2024.
    3. John Asker & Heski Bar-Isaac, 2014. "Raising Retailers' Profits: On Vertical Practices and the Exclusion of Rivals," American Economic Review, American Economic Association, vol. 104(2), pages 672-686, February.
    4. Arijit Mukherjee, 2012. "Social Efficiency of Entry with Market Leaders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 431-444, June.

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