Major Predatory Tactics
Major monopoly predatory tactics that have been used throughout history, although sometimes with new modifications and guises, include the following:
(1) Temporarily lowering prices, or even offering a product for free, to drive competition out of business. Once the competitors have given up, the monopolist raises prices to their profit-maximizing level (which is usually substantially higher than the level that competitors charged). The variation of this in which a monopolist supplies a new product for which it does not yet have a monopoly along with a product for which it is already a monopolist is referred to as bundling.
(2) Buying out competitors. This can be done either directly or through the use of subsidiaries or other friendly companies to make it less obvious and reduce the risk of complaints from the public and politicians. In addition to buying out existing competitors, it is important for a monopolist to also acquire, or otherwise destroy, potential competitors with promising new technologies. Although the monopolist may obtain and use some such technologies, others may be lost to the society, thereby setting back the pace of technological advance.
(3) Persuading suppliers to boycott competitors, to charge them higher prices and/or to provide them with inferior service. This can also be accomplished by taking control of suppliers (i.e., vertical integration), either by buying them out directly or acquiring them through subsidiaries. Monopolists typically have much leverage with suppliers because of their large purchases and their consequent ability to reward cooperating suppliers and punish uncooperative ones.
(4) Getting suppliers to give secret rebates on the suppliers' products (e.g., raw materials or transportation)5. Such rebates can make it look like the monopolist has a lower cost structure than its competitors and thus help drive them out of business. Because of the hidden nature of this practice, it can be difficult for competitors to understand what is really going on and to make timely complaints to government regulatory authorities.
(5) Getting major customers to boycott competitors. There are various ways to accomplish this, including forcing customers to sign exclusivity contracts, giving them secret rebates and using the influence of related companies.
(6) Buying up, renting or otherwise hoarding all of the inputs for the competitor's region until the competitor goes out of business. An example is newspaper advertising, which can be considered an input for many businesses, particularly retail businesses. The buying up of all newspaper advertisement space in a region is a tactic that has been used extensively by large retail chains to help drive small, independent stores in the region out of business.
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(9) Physical violence or threats thereof. This was once an important tool in the monopolist's arsenal of tactics, but it is no longer common, at least in most industrialized countries.
(10) Hoarding patents. This is used to discourage potential competitors from developing and deploying new technologies. Even if the monopolist's patents are not relevant to a new technology, a monopolist will often use them to intimidate competitors with the threat of prolonged and costly legal proceedings that smaller companies usually cannot afford.
(11) Controlling standards. One way that this is done is to develop a standard for a product that becomes the de facto standard for the industry and to then use copyrights, patents and other techniques to prevent competitors from being able to fully conform to the standard. Another is to participate in industry-wide standards setting organizations and manipulate them by such techniques as paying other members to support its proposals and using stalling techniques to block unfavorable proposals. A third way is to weaken an existing industry standard by developing products that work with slightly modified versions of it.
(12) User lock-in. This is accomplished by developing products such that it is difficult for users to switch to those of competitors even if competitors come up with less expensive and/or higher quality products. It is closely related to controlling standards.
(13) Announcing a new product far in advance to discourage potential developers of similar products and to discourage users from switching to competitors. In some cases the new product is not actually developed; this is referred to as vaporware in the computer software industry, where it is alleged to be fairly common.
Monopolies usually use a number of these tactics, with the exact combination being determined by the type of industry and the relative ease, risk and effectiveness of each. For example, some tactics might be illegal, depending on the country, or run the risk of provoking an unfavorable public response even if not illegal. Often the criteria are not whether an action is illegal or not, but the extent to which the law will be enforced, if at all, and weighing the possible penalties against the potential gains.
