Testing Whether Predatory Commitments are Credible

J. OF BUSINESS, Vol. 69 No. 3, July 1996

Posted: 1 Jul 1998

See all articles by John R. Lott

John R. Lott

US Department of Justice

Tim C. Opler

Credit Suisse First Boston

Abstract

Many recent game-theoretic models suggest that with asymmetric information it can be profitable for firms to acquire a reputation for toughness to discourage later entry. We identify institutional arrangements which firms must undertake if predatory commitments are to be credible. For example, simply hiring managers who value market share or output maximization is insufficient if managers can be removed whenever it actually becomes necessary to engage in predation. Firms must also make removing the manager more difficult. We find no evidence that allegedly predatory firms are organized as these game-theoretic models imply. If anything, the reverse seems to be frequently true.

JEL Classification: K21, K42, L1, L4

Suggested Citation

Lott, John R. and Opler, Tim C., Testing Whether Predatory Commitments are Credible. J. OF BUSINESS, Vol. 69 No. 3, July 1996, Available at SSRN: https://ssrn.com/abstract=7380

John R. Lott (Contact Author)

US Department of Justice ( email )

Washington, DC 20531
United States

Tim C. Opler

Credit Suisse First Boston ( email )

11 Madison Avenue
Investment Banking Div., 23rd Flr
New York, NY 10010
United States
(212) 328-5313 (Phone)
(212) 448-3410 (Fax)

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