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Abstract

The capacity investment by a new firm into an established market is explored in a repeated price game. If the entrant expects collusion to prevail upon entry, it may not practice "judo economics" but instead choose to install enough capacity to serve the entire market. This occurs when collusion involves optimal punishment paths.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 15 (1997)
Issue (Month): 3 (May)
Pages: 349-368

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Handle: RePEc:eee:indorg:v:15:y:1997:i:3:p:349-368

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords:

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Find related papers by JEL classification:

• D40 - Microeconomics - - Market Structure and Pricing - - - General
• D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
• L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
• L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References

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1. Benoit, Jean-Pierre & Krishna, Vijay, 1991. "Entry deterrence and dynamic competition : The role of capacity reconsidered," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 477-495, December.
2. Schmalensee, Richard, 1987. "Competitive advantage and collusive optima," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 351-367.
3. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
   
   • Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
5. Carl Davidson & Raymond Deneckere, 1984. "Excess Capacity and Collusion," Discussion Papers 675, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
   
   • Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-41, August.
6. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
7. Ware, Roger, 1984. "Sunk Costs and Strategic Commitment: A Proposed Three-Stage Equilibrium," Economic Journal, Royal Economic Society, vol. 94(374), pages 370-78, June.
8. Stenbacka, L Rune, 1990. "Collusion in Dynamic Oligopolies in the Presence of Entry Threats," Journal of Industrial Economics, Wiley Blackwell, vol. 39(2), pages 147-54, December.
9. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
10. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
11. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
12. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
13. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn.
14. Brock, William A & Scheinkman, Jose A, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 371-82, July.
15. Eric Maskin & Jean Tirole, 1985. "A Theory of Dynamic Oligopoly, II: Price Competition," Working papers 373, Massachusetts Institute of Technology (MIT), Department of Economics.
16. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.

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Cited by:

1. Dechenaux, Emmanuel & Kovenock, Dan, 2003. "Endogenous Rationing, Price Dispersion, and Collusion in Capacity Constrained Supergames," Purdue University Economics Working Papers 1164, Purdue University, Department of Economics.
   
   • Emmanuel Dechenaux & Dan Kovenock, 2011. "Endogenous rationing, price dispersion and collusion in capacity constrained supergames," Economic Theory, Springer, vol. 47(1), pages 29-74, May.
2. García Díaz, Antón & Kujal, Praveen, . "List princing and pure strategy outcomes in a bertrand edgeworth duopoly," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/6089, Universidad Carlos III de Madrid.
   
   • García Díaz, Antón & Kujal, Praveen, . "List pricing and pure strategy outcomes in a Bertrand-Edgeworth duopoly," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/300, Universidad Carlos III de Madrid.
   • Antón García Díaz & Praveen Kujal, 2003. "List Pricing And Pure Strategy Outcomes In A Bertrand-Edgeworth Duopoly," Economics Working Papers we034918, Universidad Carlos III, Departamento de Economía.

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