Entry accommodation under multiple commitment strategies: judo economics revisited
AbstractWe 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 InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009050.
Date of creation: 01 Aug 2009
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entry; quality; differentiation; Bertrand-Edgeworth competition;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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- Cracau, Daniel, 2013.
"Judo economics in markets with asymmetric firms,"
Elsevier, vol. 119(1), pages 35-37.
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