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Entry Deterrence In The Commons

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  • Charles F. Manson

    (Department of Economics, University of Wyoming)

  • Stephen Polasky

    (Department of Economics, Boston College)

Abstract

In this paper we analyze a model in which initially there is a single firm that harvests from a common property resource. The firm faces potential entry of a rival in the future. The costs of harvest from the resource is a function of the stock size. By drawing down the initial population, the monopolist credibly commits to a smaller future stock. Because this increases costs, in particular the entrant’s, it makes the post-entry equilibrium less profitable for the entrant. By drawing down the current stock sufficiently, the incumbent can make entry unprofitable. Of course this raises the monopolist’s costs as well; if there requisite first period harvest is sufficiently great, deterrence will prove unattractive. We analyze the conditions under which the incumbent firm would deter entry and when entry would be allowed. Further, we analyze the effect that potential entry has on the harvest rate both before and after the date of potential entry and whether or not potential entry is welfare improving.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 209.

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Date of creation: Dec 1993
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Handle: RePEc:boc:bocoec:209

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Cited by:
  1. Ana Espinola-Arredondo & Felix Munoz-Garcia, . "Asymmetric Information may Protect the Commons: The Welfare Benefits of Uniformed Regulators," Working Papers 2013-8, School of Economic Sciences, Washington State University.
  2. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2011. "Would hotelling kill the electric car?," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 281-296, May.
  3. James A. Brander & M. Scott Taylor, 1995. "International Trade and Open Access Renewable Resources: The Small Open Economy Case," NBER Working Papers 5021, National Bureau of Economic Research, Inc.
  4. Mason, Charles F. & Phillips, Owen R., 1997. "Mitigating the Tragedy of the Commons through Cooperation: An Experimental Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 148-172, October.
  5. Fischer, Maria-Elisabeth & Irlenbusch, Bernd & Sadrieh, Abdolkarim, 2004. "An intergenerational common pool resource experiment," Journal of Environmental Economics and Management, Elsevier, vol. 48(2), pages 811-836, September.
  6. Charles Mason & Stephen Polasky, 2002. "Strategic Preemption in a Common Property Resource: A Continuous Time Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 23(3), pages 255-278, November.
  7. James Brander & M. Scott Taylor, 1997. "International Trade Between Consumer and Conservationist Countries," NBER Working Papers 6006, National Bureau of Economic Research, Inc.
  8. Robin Mason & Timothy Swanson, . "Entry Deterrence and Environmental Regulation," Economics Papers 1997-W9, Economics Group, Nuffield College, University of Oxford.
  9. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2011. "Can incomplete information lead to under-exploitation in the commons?," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 402-413.
  10. Brian R. Copeland & M. Scott Taylor, 2009. "Trade, Tragedy, and the Commons," American Economic Review, American Economic Association, vol. 99(3), pages 725-49, June.
  11. Benchekroun, Hassan & Halsema, Alex & Withagen, Cees, 2010. "When additional resource stocks reduce welfare," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 109-114, January.
  12. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.

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