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Entry Deterrence in a Finitely-Lived Industry

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  • Arthur Fishman

Abstract

The Ghemawat and Nalebuff (1985) exit model is extended to include an entry stage. Demand is high at the time of entry but is expected to eventually decline. It is shown that equilibrium entry decisions may be critically affected by the prospect of a future decline in demand, even when the latter is scheduled to occur in the arbitrarily distant future, or is expected to be of arbitrarily short duration. In all cases, a unique perfect equilibrium for the entry game exists. This equilibrium exhibits counterintuitive features. For example, the incumbent's (and sometimes even the industry's) output may be larger if the incumbent is a monopoly than if faced with a potential entrant.

Suggested Citation

  • Arthur Fishman, 1990. "Entry Deterrence in a Finitely-Lived Industry," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 63-71, Spring.
    • Handle: RePEc:rje:randje:v:21:y:1990:i:spring:p:63-71
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    Cited by:

    1. Joaquin, Domingo Castelo & Khanna, Naveen, 2001. "Investment timing decisions under threat of potential competition: Why firm size matters1," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 1-17.
    2. Arjen van Witteloostuijn, 1998. "Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure," Management Science, INFORMS, vol. 44(4), pages 501-519, April.
    3. OTA Rui & ZHANG Lili, 2020. "Declining Demand and Product Quality: An Empirical Study of the Japanese PC Monitor Market," Discussion papers 20033, Research Institute of Economy, Trade and Industry (RIETI).

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