Testing Whether Predatory Commitments Are Credible.

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. The authors identify institutional arrangements that 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 when it actually becomes necessary to engage in predation. Firms must also make removing the manager more difficult. The authors find no evidence that allegedly predatory firms are organized as these game-theoretic models imply. If anything, the reverse seems to be frequently true. Copyright 1996 by University of Chicago Press.