Predation and its rate of return: The sugar industry, 1887-1914

David Genesove*, Wallace P. Mullin

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

19 Scopus citations

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.

Original languageAmerican English
Pages (from-to)47-69
Number of pages23
JournalRAND Journal of Economics
Volume37
Issue number1
DOIs
StatePublished - 2006

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