The economics of predation: What drives pricing when there is learning-by-doing

We formally characterize predatory pricing in a modern industrydynamics framework that endogenizes competitive advantage and industry structure. As an illustrative example we focus on learningby- doing. To disentangle predatory pricing from mere competition for efficiency on a learning curve we decompose the equilibrium pricing condition. We show that forcing firms to ignore the predatory incentives in setting their prices can have a large impact and that this impact stems from eliminating equilibria with predationlike behavior. Along with the predation-like behavior, however, a fair amount of competition for the market is eliminated. (JEL D21, D43, D83, K21, L13, L41).