Abstract

Buying market share occurs when firms price below the profit-maximizing price in order to gain market share, even though recoupment of lost profit is impossible. Although perceived by rivals as predatory pricing, buying-market-share pricing does not generally damage competition even when it forces efficient rivals to exit, and current predatory pricing policy yields desirable antitrust enforcement outcomes. However, buying market share can harm competition when share-based entry barriers exist and product differentiation is sufficiently weak. With weak product differentiation and share-based entry barriers, even prices set above average costs can have anticompetitive consequences.

Submitted: June 16, 2005 · Accepted: October 18, 2005 · Published: May 9, 2006

Recommended Citation

Thomas, Christopher R. and Kamp, Brad P. (2006) "Buying Market Share: Agency Problem or Predatory Pricing?," Review of Law & Economics: Vol. 2 : Iss. 1, Article 1.
DOI: 10.2202/1555-5879.1036
Available at: http://www.bepress.com/rle/vol2/iss1/art1