Edited by Harry Bloch
13. The economic importance of threats* Melinda Acutt and Caroline Elliott INTRODUCTION This paper presents the results of a research programme investigating the use and implications of threat-based regulation, focusing here on threat-based competition and antidumping policies. In recent years, seemingly disparate areas of the economics literature have independently explored the implications of various threats on firms’ behaviour. Much attention has focused on the implications of threatened behaviour, by existing and potential firms, on incumbent firms’ strategies in the game theory and contestable markets literatures. This paper instead examines the consequences of threatened antidumping and competition policy interventions. An existing literature explores the possibility that the threat of regulation, as well as regulation itself, can influence firms’ decisions: see, for example, Klevorick (1973), Bawa and Sibley (1980), Logan et al. (1989), Glazer and McMillan (1992). This chapter highlights a theoretical model that can contribute to this literature, notably through the use of a regulatory rule which reflects an endogenously determined probability of regulation and an endogenously determined fine, both dependent on the price charged by a firm in the first period of a two period game. However, the primary aim of the paper is not to highlight the model’s potential applicability to industry-specific regulation, but rather its implications for the design of competition policy, as there is a paucity of literature exploring the use of antitrust threats. Parallels are then drawn with the established literature on the implications of threatened antidumping duties; see Niels (2000) for a detailed survey. The...
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