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Product proliferation to prevent entry: a pedagogical note

Author

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  • Massimo A. De Francesco

    (Department of Economics and Statistics, University of Siena)

Abstract

In Cabral's (2000) industrial organization textbook, a simple model of strategic product proliferation is sketched out, in which an established firm – which would offer a homogeneous product, absent the threat of entry – launches two product varieties in order to deter entry, provided the fixed component of the cost function falls within a certain range. Among other simplifying assumptions, Cabral's model restricts the potential entrant to offering just one product variety. In this pedagogical note we allow for multiple varieties also on the part of the potential entrant and solve the two-stage location game for any level of the fixed cost. This analysis will permit a deeper understanding of the relationship between the degree of scale economies and the intensity of product proliferation to deter entry.

Suggested Citation

  • Massimo A. De Francesco, 2016. "Product proliferation to prevent entry: a pedagogical note," Economics Bulletin, AccessEcon, vol. 36(2), pages 871-878.
    • Handle: RePEc:ebl:ecbull:eb-16-00232
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    References listed on IDEAS

    as
    1. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
    2. Giacomo Bonanno, 1987. "Location Choice, Product Proliferation and Entry Deterrence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 37-45.
    3. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
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    More about this item

    Keywords

    Entry deterrence; strategic product proliferation; economies of scale;
    All these keywords.

    JEL classification:

    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics
    • L0 - Industrial Organization - - General

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