Economics of Macro Issues 7th Edition by Roger LeRoy Miller,Daniel Benjamin

Exercise 1

Consider a company called MouseAway that produces mousetraps using capital equipment initially worth $ 1 million. A competing firm, Ratfink, Inc., might take either of two actions that would reduce the value of MouseAway's equipment: Ratfink might (i) sabotage the equipment, or (ii) permanently cut the price of its own mousetraps, forcing MouseAway to cut its prices too. Why do you think we outlaw sabotage but not price cuts, given that the loss to MouseAway is the same in both cases?