Post-Entry Pricing and Vertical Integration in the Chemical Process Industries

By Marvin B. Lieberman
1989| Working Paper No. 1050

This paper examines the magnitude of price changes following entry into markets for 30 undifferentiated chemical products. On average, prices fell by about 6% in years when entry occurred. Price cuts were roughly twice as deep when the entrant was a buyer integrating backward. Producer concentration had no significant influence on post-entry pricing behavior, and predatory price cutting appears to have been rare. Nevertheless, concentration did mitigate price cutting when incumbents opened new plants in the absence of entry. These findings are interpreted in the context of theoretical models of vertical integration and entry.