Judo Economics: Capacity Limitation and Coupon Competition
AbstractThis 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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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
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Web page: http://www.rje.org
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Ciliberto, Federico & Zhang, Zhou, 2014. "Multiple Equilibria and Deterrence in Airline Markets," MPRA Paper 53232, University Library of Munich, Germany.
- Mian Dai & Xun Tang, 2013. "Regulation and Capacity Competition in Health Care: Evidence from Dialysis Markets," PIER Working Paper Archive 13-057, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Cracau, Daniel, 2013.
"Judo economics in markets with asymmetric firms,"
Elsevier, vol. 119(1), pages 35-37.
- Mikhael Shor, 2008. "An experiment on strategic capacity reduction," Working papers 2012-22, University of Connecticut, Department of Economics.
- Joseph M. Ostroy & Louis Makowski, 2001. "Perfect Competition and the Creativity of the Market," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 479-535, June.
- Matthew Spiegel & Heather Tookes, 2008. "Dynamic Competition, Innovation and Strategic Financing," Yale School of Management Working Papers amz2500, Yale School of Management.
- Daniel Cracau & Benjamin Franz, 2013. "Judo Economics in Markets with Multiple Firms," FEMM Working Papers 130013, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
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