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Judo Economics: Capacity Limitation and Coupon Competition

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Author Info
Judith R. Gelman
Steven C. Salop
Abstract

This article analyzes the effect of credible capacity limitation on the interaction between an incumbent and an entrant. The prospect of price competition deters entry by a less efficient firm with unlimited capacity. If, however, the entrant practices "judo economics" and limits its capacity sufficiently, it is in the incumbent's interest to accommodate entry. The entrant can increase its profits by selling rights (coupons) to its scarce discount output. If the entrant is less efficient, the incumbent will choose to serve coupon holders at the discount price. When this occurs, the entrant sells coupons but no output, and industry production is rationalized.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
Pages: 315-325
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Handle: RePEc:rje:bellje:v:14:y:1983:i:autumn:p:315-325

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  1. Carl Davidson & Raymond Deneckere, 1984. "Excess Capacity and Collusion," Discussion Papers 675, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
    • 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Raymond J. Deneckere & Dan Kovenock, 1988. "Capacity-Constrained Price Competition When Unit Costs Differ," Discussion Papers 861, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  4. Kala Krishna, 1989. "What Do Voluntary Export Restraints Do?," NBER Working Papers 2612, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Xavier Mancero & Eduardo Saavedra, 2006. "Un modelo de entrada y competencia en telecomunicaciones," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Economics Department, vol. 21(1), pages 29-57, July. [Downloadable!]
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  6. Mark Bergen & Margaret A. Peteraf, 2002. "Competitor identification and competitor analysis: a broad-based managerial approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 157-169. [Downloadable!]
  7. Nilssen,T. & Sorgard,L., 2000. "Strategic informative advertising in a TV-advertising duopoly," Memorandum 17/2000, Oslo University, Department of Economics. [Downloadable!]
  8. Dermot Nolan, 1998. "Predatory Pricing in an Oligopolistic Framework," Royal Holloway, University of London: Discussion Papers in Economics 98/4, Department of Economics, Royal Holloway University of London, revised Feb 1998. [Downloadable!]
  9. Natália Barbosa, 2003. "What drives new firms into an industry? An integrative model of entry," Working Papers 23, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho. [Downloadable!]
  10. Laboratoire d’Economie Forestière, 2006. "Perspectives de Recherche en Economie Forestière en France : Programmes Prioritaires pour la Période 2005-2008," Working Papers - Cahiers du LEF 2006-01, Laboratoire d'Economie Forestiere, AgroParisTech-INRA. [Downloadable!]
  11. George Norman & Jacques-François Thisse, 1998. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Discussion Papers Series, Department of Economics, Tufts University 9808, Department of Economics, Tufts University. [Downloadable!]
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  12. E. Wolfstetter, . "Oligopoly and Industrial Organization," Sonderforschungsbereich 373 1996-39, Humboldt Universitaet Berlin.
  13. Kaz Miyagiwa & Yuka Ohno, 2004. "Foreign Monopoly and Tax Holidays," Emory Economics 0416, Department of Economics, Emory University (Atlanta). [Downloadable!]
  14. Debashis Pal & Arup Bose & David Sappington, 2008. "Pareto Improving Inefficiency," University of Cincinnati, Economics Working Papers Series 2008-04, University of Cincinnati, Department of Economics. [Downloadable!]
  15. Thierry Penard, 1997. "Choix de capacités et comportements stratégiques," Annales d'Economie et de Statistique, ADRES, issue 46, pages 09, Avril-Jui. [Downloadable!]
  16. Kaz Miyagiwa & Yuka Ohno, 2000. "Top Dogs, Puppy Dogs, and Tax Holidays," Econometric Society World Congress 2000 Contributed Papers 0678, Econometric Society. [Downloadable!]
  17. Michele Polo & Carlo Scarpa, 2003. "The liberalization of energy markets in Europe and Italy," Working Papers 230, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  18. Glenn Ellison & Sara Fisher Ellison, 2007. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," NBER Working Papers 13069, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Natália Barbosa & Helen Louri, 2003. "Corporate performance: does ownership matter? A comparison of foreign - and domestic - owned firms in Greece and Portugal," Working Papers 26, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho. [Downloadable!]
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  20. repec:bep:buspol:3:2001:1:21-46 is not listed on IDEAS
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  21. Fiona Scott Morton, 1996. "Entry and Predation: British Shipping Cartels 1879-1929," NBER Working Papers 5663, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. 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. [Downloadable!]
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