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Pricing and Financial Resources: An Analysis of the Disk Drive Industry, 1980-88

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  • Lerner, Josh

Abstract

This paper empirically examines the 'long purse' hypothesis, formalized by Patrick Bolton and David Scharfstein (1990), that incumbents may drive out entrants through aggressive pricing. The author analyzes the pricing of 733 disk drives between 1980 and 1988. Drives that are adjacent to those manufactured by thinly capitalized undiversified rivals are priced lower than other drives during the later years in the sample, when little equity financing was available to these firms. The results are robust to controls for alternative hypotheses and to other specifications of the hedonic regression. Copyright 1995 by MIT Press.

Suggested Citation

  • Lerner, Josh, 1995. "Pricing and Financial Resources: An Analysis of the Disk Drive Industry, 1980-88," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 585-598, November.
    • Handle: RePEc:tpr:restat:v:77:y:1995:i:4:p:585-98
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    Cited by:

    1. Argenton, Cédric, 2019. "Colluding on excluding," European Economic Review, Elsevier, vol. 113(C), pages 194-206.
    2. Silver, Mick, 2000. "Hedonic regressions: an application to VCRs using scanner data," Omega, Elsevier, vol. 28(4), pages 399-408, August.
    3. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.
    4. Bharat A. Jain & Omesh Kini, 2008. "The Impact of Strategic Investment Choices on Post‐Issue Operating Performance and Survival of US IPO Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3‐4), pages 459-490, April.
    5. Mick Silver & Saeed Heravi, 2003. "The Measurement of Quality-Adjusted Price Changes," NBER Chapters, in: Scanner Data and Price Indexes, pages 277-316, National Bureau of Economic Research, Inc.
    6. Jain, Bharat A. & Jayaraman, Narayanan & Kini, Omesh, 2008. "The path-to-profitability of Internet IPO firms," Journal of Business Venturing, Elsevier, vol. 23(2), pages 165-194, March.
    7. Bernard, Darren, 2016. "Is the risk of product market predation a cost of disclosure?," Journal of Accounting and Economics, Elsevier, vol. 62(2), pages 305-325.
    8. Bonnetain, Philippe, 2003. "A hedonic price model for islands," Journal of Urban Economics, Elsevier, vol. 54(2), pages 368-377, September.
    9. Kim, Sung-Hwan, 2009. "Predatory reputation in US airline markets," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 592-604, September.
    10. Deltas, George & Zacharias, Eleftherios, 2006. "Entry order and pricing over the product cycle: The transition from the 486 to the Pentium processor," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1041-1069, September.
    11. Thomas, Louis A., 1999. "Adoption order of new technologies in evolving markets," Journal of Economic Behavior & Organization, Elsevier, vol. 38(4), pages 453-482, April.
    12. Chesbrough, Henry W., 2003. "Environmental influences upon firm entry into new sub-markets: Evidence from the worldwide hard disk drive industry conditionally," Research Policy, Elsevier, vol. 32(4), pages 659-678, April.
    13. Christopher S. Ruebeck, 2002. "Interfirm Competition, Intrafirm Cannibalisation and Product Exit in the Market for Computer Hard Disk Drives," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 119-131.
    14. Dai Zusai, 2012. "Excess Liquidity against Predation," DETU Working Papers 1201, Department of Economics, Temple University.
    15. Michelle Haynes & Steve Thompson & Peter W. Wright, 2014. "New Model Introductions, Cannibalization and Market Stealing: Evidence from Shopbot Data," Manchester School, University of Manchester, vol. 82(4), pages 385-408, July.
    16. Pulvino, Todd C., 1999. "Effects of bankruptcy court protection on asset sales," Journal of Financial Economics, Elsevier, vol. 52(2), pages 151-186, May.

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