Forgoing invention to deter entry
AbstractA monopoly facing potential entry may not want to develop an efficient technology even at zero R&D costs. Such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology-specific. Then the monopoly can reduce the entrant's post-entry profit to the point of deterrence by using the existing technology with which the entrant would enter. We show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate. These results hold both in quantity and price competition.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 27 (2009)
Issue (Month): 5 (September)
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Web page: http://www.elsevier.com/locate/inca/505551
Invention Entry cost Entry deterrence Production uncertainty Correlation of strategies;
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