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THE RECENT antitrust policy literature which seeks to define predatory pricing contains a flood of proposals which have pervasively transformed an entire body of law.1 One theme of this literature is that a readily anticipatable standard should be established, so that firms will not fear being sued for normal competitive responses; another is that, since predation is presumed to be rare, the standard should be lax so as to minimize the possibility of stifling competition in the overwhelming majority of more competitive markets. Perhaps the most striking feature of these arguments is the omission of any analysis of predatory behavior when business firms are sophisticated and rational. McGee I980, pp. 295-6, for example, points out that predation only pays if the present discounted value of future high prices exceeds the costs of suffering today's low prices. But if this is so for the monopolist, then why not for the competitor?
Easley et al. (Sat,) studied this question.