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Are Predatory Commitments Credible?: Who Should the Courts Believe? 1st Edition

4.9 out of 5 stars 7 customer reviews
ISBN-13: 978-0226493558
ISBN-10: 0226493555
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Editorial Reviews

Review

...in Are Predatory Commitments Credible?, John R. Lott Jr. masterfully picks apart the game theorists' argument. -- The Wall Street Journal, David R. Henderson

About the Author

John R. Lott, Jr., has held research and/or teaching positions at the University of Chicago, Yale University, Stanford, UCLA, Wharton, and Rice, and was the chief economist at the United States Sentencing Commission during 1988 and 1989. A FoxNews.com contributor, Lott is the author of eight books, including "More Guns, Less Crime" and "Freedomnomics." He received his Ph.D. in economics from UCLA in 1984.
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Product Details

  • Series: Studies in Law and Economics
  • Hardcover: 176 pages
  • Publisher: University Of Chicago Press; 1 edition (July 1, 1999)
  • Language: English
  • ISBN-10: 0226493555
  • ISBN-13: 978-0226493558
  • Product Dimensions: 6 x 1.1 x 9 inches
  • Shipping Weight: 15.8 ounces (View shipping rates and policies)
  • Average Customer Review: 4.9 out of 5 stars  See all reviews (7 customer reviews)
  • Amazon Best Sellers Rank: #1,887,226 in Books (See Top 100 in Books)

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Format: Hardcover
In the 1960s and 1970s, the conventional wisdom in the economics of industrial organization was that monopoly power was pervasive and that a strong antitrust policy was needed to combat such power. A small band of economists and lawyers associated with the University of Chicago attacked the conventional wisdom, knocking out the theoretical underpinnings of antitrust law in general and the theory of predatory pricing in particular. The Chicago School analysts showed that, in theory, predatory pricing was unlikely to work because it required the predator to lower prices on an increased quantity of product, thereby taking large losses in the short run. Moreover, even if the competitor were driven out of business, the higher long-run price needed to recoup the short-run loss would encourage entry, and in the final accounting the predation would prove unprofitable. Empirical analysis backed up the Chicago School theory. Indeed, economists could not adduce a single clear-cut case of actual predatory pricing-hence, the title of the survey article by Roland H. Koller II, "The Myth of Predatory Pricing" (Antitrust Law and Economics Review 4 [summer 1971]: 105-23).
As the Chicago School ideas triumphed in Washington, they came under attack in the academy. One source of attack was the new industrial organization (NIO), based on game theory, which was revolutionizing all areas of economics. More recently, the analysis of "path dependence" has formed a second prong of attack. The game theorists created a host of models showing that with certain assumptions about information, strategy, and the structure of the game, a threat to use predatory pricing could, in theory, be profitable.
John Lott's book Are Predatory Commitments Credible? Who Should the Courts Believe?
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Format: Hardcover
Predatory practices occupy a peculiar position in economic analysis. Empirical studies have debunked most claims of actual predation. At best, less than a handful of case exist in which predation might have been employed. Nevertheless, the problem has been analyzed extensively. The work in the 70s dealt with how to identify predation when it occurred. In the eighties, theories were devised to show that predation might be a sensible strategy in certain cases. However, no evidence was produced that these new theories had practical relevance. Lott seeks to deal with the issues. His work starts with a neat summary of the debate on predation. He formulates a clever model indicating what chacteristics a firm must have to encourage predation. He undertakes statistical tests to see whether firms accused of predation actually have the special characteristics that are needed. They do not. He goes on to add that because they are not concerned about profitability government enterprises are more likely than private firms to engage in predation. Data problems force him to rely on an indirect test, whether government-owned firms are more often accused of unfair practices in international trade. They are. He then adds an extension to the theory that considers the advantages a newcomer possesses. This is a valuable contribution. It clearly presents the basics and their tests.
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Format: Hardcover
Lott neatly dissects the case for predatory pricing in a logical manner that evidences a thorough grounding in the economic literature. He marshalls convincing empirical evidence through statistical modelling that dovetails nicely with the illustrative examples he provides. Taking each point in hand, he makes the case against predatory pricing in private enterprise, while developing a clear picture of why it can and does occur in the public sector. A must read for the policy-maker and anti-trust supporters, his thoughtful critique will stand as an important work for years to come.
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Format: Hardcover
I haven't read the book, but I wish here to comment on Mr Hellard's interesting review.
Mr Hellard writes "Lott extends this idea by arguing that an entrant facing an incumbent with a reputation for toughness should take a short position in the incumbent's stock, enter, and reap trading profits" It's a good idea, but 1) not every company is quoted on the Stock Exchange ! and 2) the price variations of the stock can be dependent on many other factors besides the incumbent/entrant rivalry (especially nowadays...).
I agree that state-owned firms are especially prone to predatory pricing and other anti-competitive behavior. I have been working for 8 years in the French telecommunications market, and the French state monopoly (France Telecom) has always tried everything legal and illegal to stifle competition. Predatory pricing is one of France Telecom's many weapons.
Officially, the French market was open to competition in 1998, but in reality many key services have remained in the grips of France Telecom so far, which has allowed the behemoth to lower charges on competitive services, while charging sometimes the equivalent of 10 times the U.S. rate on some other vital services which are not yet fully open to competition (like leased lines).
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