Life is nothing but a competition to be the criminal rather than the victim. –Bertrand Russell

The most decisive way to win at a competition is to convince any potential competitor not even to attempt a challenge. Then, the winner takes all without getting into a fight. A silverback gorilla can keep his harem and expel all challengers, at least for a while (Robbins, 1995). In business, firms (and the CEOs who run them) love a monopoly, particularly when they offer products that consumers cannot afford not to buy, like beer or bread (Jacquemin, 1982). A little competition is good for the consumer.

Nobel laureate Reinhard Selten (1978) described a paradox of competition; it is a paradox because logic dictates that competitors be accommodated, whereas practical wisdom demands aggressive moves like predatory pricing. This is the famous chain store paradox. Suppose Sheila runs a small chain of stores with two locations. Jim is ready to enter the market by opening his own store in one of the two neighborhoods where Sheila is already doing business. If Sheila does nothing, her revenue will be reduced, and Jim will make more money than he would if he did not enter the market. Let’s say Sheila makes five units of wealth, and Jim makes one unit before entry. Now, with Jim’s arrival, Sheila is down to two units of wealth, and Jim is up to two units. Sheila and Jim coexist in the first location, and Jim sees an opportunity also to enter the second location with his own store, making it a chain store as well. The outcome is competition only in the sense that each store makes less profit than it would if it were the only store. Otherwise, this situation would be one of peaceful coexistence.

Now, suppose Sheila fights back with predatory........

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