And profit-seeking firms are not prone to pursue strategies that consistently misfire. While no one doubts that each firm wants to be a monopolist, economics shows that below-cost pricing is an especially futile method of achieving monopoly power. Suppose Predator, Inc., seeks monopoly power by charging a price below cost. Predator, Inc., must be willing to expand its output and sales at the below-cost price, for only then will it take customers away from its prey and, thereby, force its prey likewise to charge prices below cost. So, the predator inevitably suffers losses during the predatory period.
Government serves no good purpose by policing against actions that no one has incentives to pursue.
Accordingly, even though predators incur greater losses than do prey, predators are thought to have greater ability to withstand such losses. This argument is unfounded. In predatory-price wars, efficient prey with no spare funds of their own would be able to borrow the funds necessary to wage counterattacks against predators. Investors make their living by successfully identifying firms that can use money today to turn profits tomorrow. A much more profitable use of these funds would be to improve production efficiency or to enhance product quality.