Miscoordination of buyers might prevent entry in an industry with an incumbent and a more efficient potential entrant. Buyers' power therefore favours entry by eliminating coordination problems. We also identify a mechanism which facilitates entry: if the potential entrant could credibly offer to pay a penalty for unfulfilled orders, miscoordination would be eliminated. Without the penalty, we show that downstream competition also facilitates entry. The stronger the competition among buyers the less likely that miscoordination arises.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2908.
Find related papers by JEL classification: D40 - Microeconomics - - Market Structure and Pricing - - - General L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure L40 - Industrial Organization - - Antitrust Issues and Policies - - - General M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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