TY - JOUR
T1 - Predation and its rate of return
T2 - The sugar industry, 1887-1914
AU - Genesove, David
AU - Mullin, Wallace P.
PY - 2006
Y1 - 2006
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=33748346668&partnerID=8YFLogxK
U2 - 10.1111/j.1756-2171.2006.tb00003.x
DO - 10.1111/j.1756-2171.2006.tb00003.x
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AN - SCOPUS:33748346668
SN - 0741-6261
VL - 37
SP - 47
EP - 69
JO - RAND Journal of Economics
JF - RAND Journal of Economics
IS - 1
ER -
