TESTING WHETHER PREDATORY COMMITMENTS ARE CREDIBLE

Many recent game-theoretic models suggest that with asymmetric informa tion it can be profitable for firms to acquire a reputation for toughn ess to discourage later entry. We 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 actual ly becomes necessary to engage in predation. Firms must also make remo ving the manager more difficult. We find no evidence that allegedly pr edatory firms are organized as these game-theoretic models imply. If a nything, the reverse seems to be frequently true.