TY  - JOUR
AU  - Dasgupta,Sudipto
AU  - Titman,Sheridan
TI  - Pricing Strategy and Financial Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5498
PY  - 1996
Y2  - March 1996
UR  - http://www.nber.org/papers/w5498
L1  - http://www.nber.org/papers/w5498.pdf
N1  - Author contact info:
Sudipto Dasgupta
Department of Finance, HKUST
Clear Water Bay, Kowloon
Hong Kong
E-Mail: dasgupta@ust.hk

Sheridan Titman
Finance Department
McCombs School of Business
University of Texas at Austin
Austin, TX 78712-1179
Tel: 512/232-2787
Fax: 512/471-5073
E-Mail: titman@mail.utexas.edu
AB  - Recent empirical evidence indicates that capital structure changes affect pricing strategies.  In most cases, prices increase following the implementation of a leveraged buyout of a major firm in an industry, with the more levered firm charging higher prices on average.  Notable exceptions exist when rival firms are relatively unlevered.  The first observation is consistent with a relatively simple model where firms compete for market share on the basis of price.  To explain the second observations (i.e. the exceptions) the model must be extended to allow for reputation effects related to product quality.  The extended model illustrates how product market imperfections in combination with high leverage can make firms vulnerable to predatory pricing.
ER  -