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Entry accommodation under multiple commitment strategies: judo economics revisited

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Author Info

  • BOCCARD, Nicolas

    ()
    (Departament d'Economia, University of Girona, Spain)

  • WAUTHY, Xavier

    ()
    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accommodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009050.

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Date of creation: 01 Aug 2009
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Handle: RePEc:cor:louvco:2009050

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Related research

Keywords: entry; quality; differentiation; Bertrand-Edgeworth competition;

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Cited by:
  1. Cracau, Daniel, 2013. "Judo economics in markets with asymmetric firms," Economics Letters, Elsevier, vol. 119(1), pages 35-37.

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