Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

13

Predatory Conduct: More Recent Developments

At one level, predatory actions can be conceptually divided into two classifications: those aimed at preventing potential rivals from entering a market, and those aimed at driving existing rivals out of a market. Our discussion in Chapter 12 was largely framed in terms of the first of these categories, i.e., deterrence of potential rivals from entering. Yet it should be clear that while these two categories are conceptually distinct, in actual practice it is very difficult to distinguish them. Tactics used to prevent entry will often be identical to tactics that drive existing rivals to exit. Bundling may be a useful entry-deterring tactic. Yet it was the devastating effect on its actual rival Netscape that raised concern over Microsoft's bundling Internet Explorer with its Windows operating system. Indeed, from the 1911 Standard Oil case on, the vast bulk of antitrust litigation over predatory behavior has centered on cases alleging that a dominant firm abused its power to drive out competitors.

There are at least two reasons that the legal history surrounding charges of predatory behavior is so heavily dominated by cases alleging efforts of one firm to drive its rivals out of business rather than to prevent them from entering in the first place. One is that to be effective, entry deterrence requires credibility. When a firm operates in many markets or faces a number of potential entrants over time in a single market, it may be necessary ...