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Uncertainty and entry deterrence

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  • Eric S. Maskin

    ()
    (Department of Economics, Harvard University, Cambridge, MA 02138, USA)

Abstract

We 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 Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 14 (1999)
Issue (Month): 2 ()
Pages: 429-437

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Handle: RePEc:spr:joecth:v:14:y:1999:i:2:p:429-437

Note: Received: July 10, 1997; revised version: November 21, 1997
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Related research

Keywords: Entry deterrence; Uncertainty; Capacity.;

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Cited by:
  1. Arnold, Jan & Minner, Stefan, 2011. "Financial and operational instruments for commodity procurement in quantity competition," International Journal of Production Economics, Elsevier, vol. 131(1), pages 96-106, May.
  2. Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
  3. Willems, Bert & Morbee, J., 2011. "Risk Spillovers and Hedging: Why Do Firms Invest Too Much in Systemic Risk?," Discussion Paper 2011-057, Tilburg University, Center for Economic Research.
  4. Jean Gabszewicz & Ornella Tarola & Skerdilajda Zanaj, 2009. "On uncertainty when it affects successive markets," CREA Discussion Paper Series 09-13, Center for Research in Economic Analysis, University of Luxembourg.
  5. Beladi, Hamid & Chakrabarti, Avik, 2012. "Stochastic processes and target zones revisited," Economics Letters, Elsevier, vol. 116(1), pages 34-36.
  6. Huisman, K.J.M. & Kort, P.M., 2013. "Strategic Capacity Investment Under uncertainty," Discussion Paper 2013-003, Tilburg University, Center for Economic Research.

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