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Entry Blockading Locations

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  • Marcel Boyer

    ()

  • Philippe Mahenc
  • Michel Moreaux

    ()

Abstract

How does asymmetric information (regarding production costs) in a spatial market alter the behavior of the incumbent firm which can credibly commit to her location choice? Although entry deterrence is irrelevant here, our analysis shows that entry blockading behavior emerges not only as the result of the incumbent's technological advantage but also as the result of the entrant's beliefs concerning this technological advantage. Using the concept of K-undefeated equilibrium, we characterize the unique location equilibrium for different values of the fixed and variable costs and we show that the conjecture formed by the entrant regarding the incumbent's location strategy does matter for the determination of the equilibrium strategies. First, we show that the market center may be an entry blockading location under incomplete information for a high cost inefficient incumbent who would accommodate entry under complete information. Second, we show that a low cost efficient incumbent who blockades entry at the market center under complete information may be better off to accommodate entry under incomplete information. Comment l'information asymétrique (sur les coûts de production) en concurrence spatiale modifie-t-elle le comportement d'une firme établie capable de s'engager de manière crédible à une localisation donnée? Bien que la dissuasion d'entrer ne soit pas pertinente dans ce contexte, nous montrons que la firme établie peut parfois bloquer l'entrée grâce ou bien à son avantage technologique ou bien aux croyances de l'entrant quant à cet avantage. Nous caractérisons pour différents niveaux de coûts fixes et variables l'unique équilibre K-imbattu. Nous montrons que les croyances de l'entrant sont importantes pour la détermination des stratégies d'équilibre. Ainsi, le centre du marché peut être une localisation bloquante en information incomplète pour une firme établie non-avantagée qui, en information complète, choisirait une localisation accomodante. Par ailleurs, nous montrons qu'une firme établie avantagée capable en information complète de bloquer l'entrée en se localisant au centre du marché pourrait choisir en information incomplète une localisation accomodante.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-51.

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Date of creation: 01 Nov 1995
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Handle: RePEc:cir:cirwor:95s-51

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Keywords: Location; Entry; Incomplete Information; Localisation; entrée; information incomplète;

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References

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  1. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1991. "Sequential Location Equilibria under Incomplete Information," IDEI Working Papers 6, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 1994.
  2. Anderson, S., 1986. "Spatial competition and price leadership," CORE Discussion Papers 1986002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Shabtai Donnenfeld & Shlomo Weber, 1995. "Limit Qualities and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 113-130, Spring.
  4. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
  5. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 37-45, January.
  6. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
  7. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1994. "Location distortions under incomplete information," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 409-440, August.
  8. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  9. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-40, May.
  10. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier.
  11. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  12. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  13. Wenders, John T, 1971. "Excess Capacity as a Barrier to Entry," Journal of Industrial Economics, Wiley Blackwell, vol. 20(1), pages 14-19, November.
  14. Hurter, Arthur Jr & Lederer, Phillip J., 1985. "Spatial duopoly with discriminatory pricing," Regional Science and Urban Economics, Elsevier, vol. 15(4), pages 541-553, November.
  15. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
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Cited by:
  1. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
  2. Touhami, A. & Martens, A., 1996. "Macroemesures in Computable General Equilibrium Models: a Probabilistic Treatment with an Application to Morocco," Cahiers de recherche 9621, Universite de Montreal, Departement de sciences economiques.

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