2 Rev. L & Econ. 1 (2006)

handle is hein.journals/rvleco2 and id is 1 raw text is: 















Buying Market Share: Agency Problem or
Predatory Pricing?

CHRISTOPHER R. THOMAS, BRAD P. KAMP
Department   ofEconomics,   University ofSouth Florida








Buying market share occurs when firms price below the profit-maximiging price in order to gain
market share, even though recoupment of lost profit is impossible. Although perceived ly rivals as
predatoU pricing bujing-market-share priding does not generalyl damage competition even when it
forces effident rivals to exit, and current predato pricing poldyjields desirable antitrust enforcement
outcomes. However, buing market share can harm competition when share-based entU bariers exist
and product dferentiation is suffidenty weak. With weak product differentiation and share-based
entry barriers, even prices set above average costs can have anticompetitive consequences.


    If you are hunting for a predator and mistakenly shoot a competitoryou injure consumers.
                                                    Kenneth Elginga and Daid  Millst


 1. INTRODUCTION
 Despite  widespread   recognition  that many firms experience serious agency
 problems,  pricing behavior  by  managers  who   do not  seek to  maximize  profit
 has received  only  minor   and  scattered  attention by  antitrust policymakers.
 Episodes   of  ineffective  corporate   governance appear to be sufficiently
 common to warrant inclusion in antitrust analysis.' Antitrust policy benefits


 *  The authors appreciate valuable comments from Philip Porter, Scott Stephens, and an
 anonymous referee, but retain responsibility for remaining errors. The authors thank the USF
 Division of Sponsored Research for financial support.
 t Elzinga and Mills (2001:3).
 1 In a recent review of the modern significance of Brandeis's and Holmes's views on business,
 Posner (2005) refers to the current crisis of corporate governance and observes that most
 experts in corporate governance and corporate finance, including economists and regulators as
 well as lawyers, underestimated the amount of corporate misfeasance and the size of agency

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