A Framework to Enforce Anti-Predation Rules

Abstract

The major interest of antitrust law and economics with respect to predation strategies has been largely twofold. On the one hand, there has been a lively discussion on the question whether predation can basically be a rational strategy for an incumbent facing an entry threat. On the other hand, research has focused on the problem of how an antitrust authority should detect predation strategies and especially distinguish such abuses from socially desirable, procompetitive behaviour. However, compared to other areas of antitrust policy such as hard core cartel enforcement or merger control, surprisingly little research has been devoted to the subsequent third stage in antitrust analysis: intervention. This stage acknowledges the necessity of appropriate detection rules for efficient antitrust enforcement, but it uses these insights to answer the complementary question of how these rules should be linked to punishment with a pecuniary fine and/or the imposition of behavioural remedies. Against this background, the paper aims at developing a framework to enforce anti-predation rules that explicitly takes the intervention stage into account. Following a characterisation and rationalisation of predation, the welfare effects of predation are studied. Given the key finding that predation can be a rational business strategy with negative implications on overall welfare, research with respect to the detection of predation is reviewed. However, given the fact that detecting is a necessary but not sufficient condition for ‘enforcing’, the intervention options against predators are analyzed subsequently. The analysis differentiates between a no rule approach, an ex post rule of reason and an ex ante per se rule. It was shown that no policy option dominates the others and that the welfare optimal policy response depends on several industry and market characteristics such as the level of the incumbency advantages, the level of the gains of entry for society or the specifics of antitrust enforcement in the respective jurisdiction. Subsequently, the key insights of the analysis are incorporated into the development of a framework to enforce anti-predation rules which aims at increasing the deterrence effect of predation strategies without biasing the fundamentally important incentives of firms for procompetitive price decreases.