Predatory Accommodation: Below Cost Pricing Without Exclusion in Intermediate Goods Markets

Posted: 24 Feb 1999

See all articles by Leslie M. Marx

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

Greg Shaffer

University of Rochester - Simon Business School

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 anti-competitive and when they should not.

JEL Classification: L11, L22

Suggested Citation

Marx, Leslie M. and Shaffer, Greg, Predatory Accommodation: Below Cost Pricing Without Exclusion in Intermediate Goods Markets. RAND Journal of Economics, Vol. 30, No. 1, Available at SSRN: https://ssrn.com/abstract=138968

Leslie M. Marx (Contact Author)

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Greg Shaffer

University of Rochester - Simon Business School ( email )

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