Working Paper: CEPR ID: DP17428
Authors: Yossi Spiegel; Patrick Rey; Konrad O. Stahl
Abstract: We study the feasibility and profitability of predation in a parsimonious infinite-horizon, complete information setting where an incumbent may face an entrant, in which case it needs to decide whether to accommodate orpredate it. If the entrant exits, a new entrant is born with positive probability. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, predation with no future entry, and predation with hit-and-run entry. We use the model to study alternative antitrust policies, derive the best rules for these policies, and compare their welfare effects.
Keywords: predation; accommodation; entry; legal rules; markov perfect equilibrium
JEL Codes: D43; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Incumbent's expectations about future entrants (D84) | Incumbent's predatory behavior (G34) |
| Incumbent's predatory behavior (G34) | Entrant's behavior (entry or exit) (D16) |
| Predation (Q57) | Monopolization equilibrium (D42) |
| Cost-benefit analysis of predation (D61) | Incumbent's strategic decisions (D79) |
| Incumbent's strategy (predation vs. accommodation) (D79) | Entrant's behavior (entry or exit) (D16) |
| Aggressive pricing (D49) | Monopolistic behavior (L12) |
| Aggressive pricing (D49) | Consumer benefits in the short term (D16) |