Working paper

A Dynamic Model of Predation

Patrick Rey, Yossi Spiegel, and Konrad Stahl

Abstract

We study the feasibility and profitability of predation 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 predation may be welfare improving.

Keywords

predation; accommodation; entry; legal rules; Markov perfect equilibrium;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • L41: Monopolization • Horizontal Anticompetitive Practices

Reference

Patrick Rey, Yossi Spiegel, and Konrad Stahl, A Dynamic Model of Predation, TSE Working Paper, n. 22-1375, October 2022, revised April 2024.

See also

Published in

TSE Working Paper, n. 22-1375, October 2022, revised April 2024