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On the Effectiveness of Anit-Predation Rules

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  • Rainer Nitsche
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    Abstract

    Current anti-predation rules are designed to detect and prevent actions that are only taken to drive out a rival. We evaluate the performance of these rules in a simple entry game. We find that the rules used by competition authorities fail to encourage sustained competition in the market. Moreover, despite the rules an inefficient incumbent cannot be replaced by a more efficient entrant unless the difference in efficiency is extreme. One reason for these failures is that incumbents choose a strategic response to the legal environment. Large incumbents, for instance, crowd the product space. This is detrimental to welfare and consumer surplus. ZUSAMMENFASSUNG - (Die Effektivität von Wettbewerbsregeln gegen Verdrängungspreisverhalten) Wettbewerbsbehörden stützen sich auf Wettbewerbsregeln, um Unternehmen an Handlungen zu hindern, die nur dann profitabel sind, wenn sie zum Marktaustritt des Rivalen führen. Der Autor analysiert die Effektivität dieser Regeln in einem einfachen Markteintrittsspiel und zeigt, daß die Regeln keinen dauerhaften Wettbewerb im Markt erzeugen. Darüber hinaus verfehlen die Regeln ein weiteres Ziel: auch bei perfekter Durchsetzung der Regeln kann ein effizienterer Marktneuling in einem Verdrängungskampf nicht gegen das alteingesessene Unternehmen gewinnen, es sei denn, die Effizienzunterschiede sind extrem. Ein Grund für dieses Scheitern ist, dass sich die alteingesessenen Unternehmen strategisch an die rechtlichen Rahmenbedingungen anpassen. Wenn ein Markteintritt von effizienteren Unternehmen droht, so entscheiden sie sich eher für eine Angebotserhöhung als den Markteintritt zu gestatten. In dem untersuchten Spiel mindert dies Wohlfahrt und Konsumtenrente.

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    Bibliographic Info

    Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 02-12.

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    Length: 69 pages
    Date of creation: Nov 2002
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    Handle: RePEc:wzb:wzebiv:fsiv02-12

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    Keywords: competition policy; entry;

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    2. Navon, Ami & Shy, Oz & Thisse, Jacques-François, 1995. "Product Differentiation in the Presence of Positive and Negative Network Effects," CEPR Discussion Papers 1306, C.E.P.R. Discussion Papers.
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    5. Bolton, P. & Brodley, J.F. & Riordan, M.H., 1999. "Predatory Pricing: Strategic Theory and Legal Policy," Discussion Paper 1999-82, Tilburg University, Center for Economic Research.
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    10. Ordover, Janusz A. & Saloner, Garth, 1989. "Predation, monopolization, and antitrust," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 9, pages 537-596 Elsevier.
    11. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    12. Alison Oldale, 1998. "Local Bus Deregulation and Timetable Instability," STICERD - Economics of Industry Papers 21, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    13. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
    14. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
    15. Alison Oldale, 1998. "Local bus deregulation and timetable instability," LSE Research Online Documents on Economics 6756, London School of Economics and Political Science, LSE Library.
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