Uncertainty and entry deterrence
AbstractWe study a model where capacity installation by an incumbent firm serves to deter others from entering the industry. We argue that uncertainty about demand or costs forces the incumbent to choose a higher capacity level than it would under certainty. This higher level diminishes the attractiveness of deterrence (Proposition 1) and, therefore, the range of parameter values for which deterrence occurs (Proposition 2).
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 14 (1999)
Issue (Month): 2 ()
Note: Received: July 10, 1997; revised version: November 21, 1997
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Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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