Research

Price, Costs, Externalities and Entrepreneurial Capital: Lessons from Wisconsin

In Matsushita v. Zenith the Supreme Court gave a ringing endorsement to the Chicago school's view "that predatory pricing schemes are rarely tried, but even more rarely successful."(1) Consequently the Court clearly indicated that it would exercise great reluctance before finding for a complainant in this area.(2) The Justices noted that scholars like Easterbrook had shown that on theoretical grounds predation was unlikely to occur and further there was scanty empirical evidence documenting predatory behavior.(3)

In this article we document the predatory behavior by an incumbent, Wisconsin Telephone. We argue that Easterbrook's analysis of market behavior fails to explain the evolution of the telephone industry in Wisconsin because of his narrow view of business strategy. Specifically, we show that the incumbent adopted predatory prices in order to block the growth of a firm whose manager had well recognized entrepreneurial skills. The incumbent was willing to take losses in one market in order to prevent the entrepreneur from expanding his network.

Publication Information
Article Title: Price, Costs, Externalities and Entrepreneurial Capital: Lessons from Wisconsin
Journal: Antitrust Bulletin (1995)
v. 30 iss. 3 pp. 581-608
Author(s): Rosenbaum, David I;  Gabel, David
Researcher Information
    
Rosenbaum, David I
Rosenbaum, David I
Associate Director of the Bureau of Business Research,
Expertise:
  • Forensic Economics
  • Applied Microeconomics
  • Cost-Benefit Analysis
Economics
CoB 525 J
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-2318
Fax: (402) 472-9700
drosenbaum1@unl.edu