Predation Enforcement Options: An Evaluation Using a Cournot Framework

From a competition policy perspective, predatory behaviour ('predation') has always been a rather controversial issue. For example, while some commentators doubt that such forms of behaviour play a significant role in real markets, others argue that predation can very well be a rational strategy for incumbents facing an entry threat. In addition to the discussions on the rationality of predation, researchers and practitioners were involved in controversial exchanges on the question how predation should be detected in actual competition cases. This strand of research concentrated on the derivation of suitable cost concepts on the one hand, and the design of entire investigation frameworks on the other hand. Given the detailed discussions on the rationality and detection of predation, it comes as a surprise that the existing literature largely ignores the complementary final step in an antitrust investigation, namely the question how to intervene against detected predators. This lack of research is unfortunate for especially two reasons. First, from a theoretical perspective, the key aim of an efficient implementation of a deterrence-based antitrust policy can only be reached by sending out clear signals to possible predators about the legal consequences of such misconduct. Second, from a practical perspective, the witnessed significant increase in successful predation cases in the European Union immediately raise the question how competition authorities and courts should intervene against (detected) predators. Against this background, the paper commences with a brief characterisation of the building blocks of a framework to enforce anti-predation rules and subsequently evaluates selected enforcement options in a Cournot-type duopoly predation model. Differentiating between a no rule approach, an ex ante approach and two ex post approaches, it is shown that an ex post approach typically maximises overall welfare. However, an ex ante approach can be the preferred option in cases where the entrant has a large cost advantage over the incumbent.

Hüschelrath, Kai and Jürgen Weigand (2010), Predation Enforcement Options: An Evaluation Using a Cournot Framework, ZEW Discussion Paper No. 10-082, Mannheim, published in: European Journal of Law and Economics.