This article distinguishes between two types of single-firm conduct. The first, which we call "extraction," is conduct engaged in by the firm to capture Surplus from what the firm has created independently of the conduct's effect on rivals. The second, which we call "extension," is single-firm conduct that increases the firm's profit by weakening or eliminating the competitive constraints provided by rivals' products. We propose, as a fundamental antitrust policy towards single-firm conduct, the following: Conduct merely to extract Surplus the firm has created independently of the conduct's effect on rivals should be permitted. Conversely, conduct that extends the firm's market power by impairing the competitive constraints imposed by rivals presents a legitimate cause for concern. An essential element of appropriate antitrust Policy is to allow a firm to capture as much of the surplus that, by its own investment, innovation, industry, or foresight, the firm has itself brought into existence. Alternative policy approaches to single-firm conduct including, in particular, ones aiming to enhance static efficiency at the possible cost of dynamic efficiency and ones seeking to maximize overall welfare through more targeted intervention on a case-by-case basis (not to mention the use of competition policy to protect competitors rather than consumers) seriously threaten to impede economic growth and welfare over time. A policy that goes further, and which permits all unilateral conduct regardless of competitive effects (perhaps on grounds that "even more profit will generate even more innovation") is considered and rejected as overly lenient, inconsistent with widely accepted presumptions in favor of inter-firm competition, and Unwise-at least under the Current state of economic knowledge.
