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A Dynamic Model of Predation

Author

Listed:
  • Patrick Rey
  • Yossi Spiegel
  • Konrad Stahl

Abstract

We study the feasibility and profitability of predtion in a dynamic environment, using a parsimonious infinite-horizon, complete information setting in which an incumbent repeatedly faces potential entry. When a rival enters, the incumbent chooses whether to accommodate or predate it; the entrant then decides whether to stay or exit. We show that there always exists a Markov perfect equilibrium, which can be of three types: accommodation, monopolization, and recurrent predation. We then analyze and compare the welfare effects of different antitrust policies, accounting for the possibility that recurrent predtion may be welfare improving.

Suggested Citation

  • Patrick Rey & Yossi Spiegel & Konrad Stahl, 2024. "A Dynamic Model of Predation," CRC TR 224 Discussion Paper Series crctr224_2024_529, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_529
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp529
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    More about this item

    Keywords

    predation; accommodation; entry; legal rules; Markov perfect equilibrium;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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