Is predation rational? Is it profitable?

Abstract

Predation, according to New Learning theorists, is defined "as a firm's deliberate aggression against one or more rivals through the employment of business practices that would not be considered profit maximizing except for the expectations either that (1) rivals will be driven from the market, leaving the predator with a market share sufficient to command monopoly profits, or (2) rivals will be chastened sufficiently to abandon competitive behavior the predator finds inconvenient or threatening" (Bork, 1978, p. 14). In the case of price predation, they contend, a "firm contemplating predatory price warfare will perceive a series of obstacles that make the prospect of such a campaign exceedingly unattractive. The losses during the war will be proportionally higher for the predator than for the victim; merger law will make it all but impossible for the predator to purchase the victim, so the campaign will have to last until the victim's organization and assets are dissolved; ease of entry will be symmetrical with ease of exit; and anticipated monopoly revenues, being deferred, must be discounted at the current interest rate", (Bork, 1978, p. 149). Therefore, the New Learning advocates conclude, predatory pricing "is most unlikely to exist . . . attempts to outlaw it are likely to harm consumers more than would abandoning the effort" (Bork, 1978, p. 155). This view has found resonance not only among economists,1 but has also penetrated the antitrust bar and the courts. Its dominance was assured when the Supreme Court, in a series of landmark antitrust decisions, held that predation is so irrational and so fraught with uncertainty and perils that a rational profit-maximizing