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Weak Entrants are Welcome

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  • Ashiya, M.

Abstract

This paper investigates the decision problem of an incumbent firm confronted by both a weak and a strong entrant in a differentiated market. Suppose that the incumbent can deter entry of the weak firm, but cannot deter entry of the strong firm by itself. Then the incumbent may allow entry of the weak firm and use it to alter the strong firm's entry decision. The present paper formalizes this idea, and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade loberalization. The idea also expalins why a dominant firm lets fringe firms be in the market.

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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0468.

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Length: 38 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:dpr:wpaper:0468

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Keywords: MARKETS STRUCTURES ; BUSINESS ORGANIZATION ; PROTECTIONISM;

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References

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  1. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
  2. Gillian K. Hadfield, 1991. "Credible Spatial Preemption through Franchising," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 531-543, Winter.
  3. Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
  4. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 37-45, January.
  5. Berck, Peter & Perloff, Jeffrey M., 1988. "The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(4), pages 659-678, November.
  6. Neven, Damien J., 1987. "Endogenous sequential entry in a spatial model," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 5(4), pages 419-434.
  7. repec:fth:osakae:468 is not listed on IDEAS
  8. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June.
  9. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
  10. repec:fth:osakae:476 is not listed on IDEAS
  11. Gilbert, Richard & Vives, Xavier, 1986. "Entry Deterrence and the Free Rider Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 71-83, January.
  12. Crampes, C. & Hollander, A., 1990. "Umbrella Pricing to Attract Early Entry," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9006, Universite de Montreal, Departement de sciences economiques.
  13. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
  14. Elie Appelbaum & Chin Lim, 1985. "Contestable Markets under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 28-40, Spring.
  15. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
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Citations

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Cited by:
  1. Byoung Heon Jun & In-Uck Park, 2005. "Anti-Limit Pricing," Levine's Bibliography 172782000000000041, UCLA Department of Economics.
  2. Toshihiro Matsumura & Noriaki Matsushima, 2009. "Cost differentials and mixed strategy equilibria in a Hotelling model," The Annals of Regional Science, Springer, Springer, vol. 43(1), pages 215-234, March.
  3. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, 09.
  4. Kitamura, Hiroshi, 2010. "Exclusionary vertical contracts with multiple entrants," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(3), pages 213-219, May.
  5. Murooka, Takeshi, 2013. "A note on credible spatial preemption in an entry–exit game," Economics Letters, Elsevier, vol. 118(1), pages 26-28.
  6. Heide Coenen, 2000. "Network Effects in Telecommunications: When Entrants are Welcome," Discussion Papers, Government Institute for Economic Research Finland (VATT) 241, Government Institute for Economic Research Finland (VATT).
  7. Hiroshi Kitamura, 2008. "Exclusionary Vertical Contracts with Multiple Entrants," Discussion Papers in Economics and Business 08-39, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  8. Laura Magazzini & Fabio Pammolli & Massimo Riccaboni, 2004. "Dynamic competition in pharmaceuticals," The European Journal of Health Economics, Springer, Springer, vol. 5(2), pages 175-182, May.
  9. Ashiya, M., 1999. "Brand Proliferation is Useless to Deter Entry," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0476, Institute of Social and Economic Research, Osaka University.
  10. Aidan Hollis, 2003. "The Anti-Competitive Effects of Brand-Controlled "Pseudo- Generics" in the Canadian Pharmaceutical Market," Canadian Public Policy, University of Toronto Press, vol. 29(1), pages 21-31, March.
  11. Laura Magazzini & Fabio Pammolli & Gianluca Papa & Nicola Carmine Salerno, 2005. "Generici vs. Branded: confronto internazionale su prodotti off-patent rimborsati dal SSN," Working Papers 01-2005, Competitività Regole Mecati (CERM).
  12. Magazzini, Laura & Pammolli, Fabio & Riccaboni, Massimo, 2004. "Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure," MPRA Paper 15968, University Library of Munich, Germany.
  13. Ishibashi, Ikuo, 2003. "A note on credible spatial entry deterrence," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(2), pages 283-289, February.

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