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Entry Decision and Pricing Policies

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  • Sílvia Jorge

    ()
    (Universidade de Aveiro)

  • Cesaltina Pires

    (Universidade de Évora)

Abstract

We extend the analysis of the impact of firms' pricing policies upon entry to a framework where price competition and differentiated products are present. We consider a model where an incumbent serves two distinct and independent geographical markets and an entrant may enter in one of the markets. Entry under discriminatory pricing is more likely than under uniform pricing when entry is profitable under discriminatory pricing but unprofitable under uniform pricing. Our results show entry under discriminatory pricing may be more, less or equally likely than under uniform pricing. We show that the degree of product substitutability affects the impact of pricing policies upon entry decision.

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Bibliographic Info

Paper provided by Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro in its series Working Papers de Economia (Economics Working Papers) with number 41.

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Length: 23 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:ave:wpaper:412007

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Related research

Keywords: Entry; Product Differentiation; Discriminatory Pricing; Uniform Pricing;

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References

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  1. Cheung, Francis K. & Wang, X. Henry, 1999. "A note on the effect of price discrimination on entry: Research note," Journal of Economics and Business, Elsevier, vol. 51(1), pages 67-72, January.
  2. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-59, December.
  3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
  4. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
  5. Aguirre, Inaki & Espinosa, Maria Paz & Macho-Stadler, Ines, 1998. "Strategic entry deterrence through spatial price discrimination," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 297-314, May.
  6. Azar, Ofer H., 2002. "Can Price Discrimination be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation," MPRA Paper 4575, University Library of Munich, Germany.
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Cited by:
  1. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.

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