Exclusionary Pricing by State-Owned Enterprises: Experimental Evidence

State ownership is increasingly being positioned by policymakers to accelerate sustainability transitions. This may create or strengthen dominant State-Owned Enterprises (SOEs), and SOEs have been flagged in the theoretical literature as being prone to abuse of dominance by means of exclusionary pricing (also referred to as ‘predatory pricing’). At the same time, the price level at which incumbent pricing (should) be considered exclusionary and unlawful remains subject to debate in both theoretical and experimental literatures. We design an experimental duopoly market with a dominant incumbent and a non-dominant entrant, where in 3 treatments we compare outcomes in a private market to outcomes in mixed markets, where the dominant firm is an SOE. We observe for exclusionary pricing below marginal cost, below break-even point, and above break-even point. We find strong evidence for exclusionary pricing in both private and mixed markets. This finding is remarkable given the professed rarity of exclusionary pricing in previous experimental research. Furthermore, we find both more and more severe exclusionary pricing in the treatments where the dominant incumbent is an SOE. We record the highest percentage of exclusionary pricing when the SOE is not fully profit driven but also concerned with social welfare. These findings suggest more elaborate monitoring of SOE’s competition law compliance is appropriate when creating or strengthening dominant SOEs.