Predatory pricing has long been a contentious issue among lawmakers and economists. Legal actions are regularly brought against companies that practice predatory pricing to drive competitors out of business. But to be successful in this practice, predatory firms must risk keeping prices below cost for such an extended period that it would become cost-prohibitive to continue the strategy. Recently, economists have turned to game theory to examine circumstances under which predatory tactics could be profitable.

In Are Predatory Commitments Credible? Who Should the Courts Believe?, John Lott provides empirical analysis of predatory pricing. By examining firms accused of or convicted of predation over a thirty-year period, he shows that these firms are not organized as game-theoretic or other models of predation would predict. In contrast, what evidence exists for predation suggests that government enterprises are more of a threat and are more likely to engage in predatory behavior than private firms. Lott also analyzes whether entrants may sometimes have a distinct advantage over incumbent predator firms and shows that in certain cases the more credible the predator's threat, the greater may be the return to a competitor who enters the market.

Lott presents crucial new data and analysis, attacking an issue of major legal and economic importance. This impressive work will be of great interest to economists, legal scholars, and antitrust policy makers.

John R. Lott Jr. was a resident scholar at AEI and was the John M. Olin Fellow in Law and Economics at the University of Chicago. He is the author of More Guns, Less Crime, published by the University of Chicago Press.

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