Two Tales of Monopolization∗

We develop a two-stage duopoly model: At stage one, firms invest in their products or processes; at stage two, they produce and sell their output. Unlawful monopoliza-tion by one firm is modelled as a constraint on the other firm’s marketable output. We show that, for certain parameter values, the equilibrium under monopolization is also one possible market outcome under fair competition. This observational equivalence result complicates the task of assessing whether a firm’s dominance in a given industry is the result of fair competition or unlawful monopolization. We discuss a number of implications for antitrust policy and litigation, and illustrate these by means of two well-known antitrust cases