Capacity, Entry and Demand Uncertainty
AbstractIn a a two period model of strategic entry deterrence (a la Dixit, 1980) where the incumbent firm moves before the entrant by installing capacity for production, in a (perfect) equilibrium excess capacity is not observed under a deterministic demand. The question whether this result remains valid under demand uncertainty is analyzed. It has been shown that the result of holding no excess capacity may not hold when there is a demand uncertainty. In connection to this, the other relevant issue that is also analyzed in this paper, is to see the impact of the distribution of demand uncertainty on uncumbent's decision, when it faces the choice to deter or accomodate the potential entrant.
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Bibliographic InfoPaper provided by Indira Gandhi Institute of Development Research- in its series Papers with number 148.
Length: 18 pages
Date of creation: 1998
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OLIGOPOLIES ; STRATEGIC PLANNING ; MARKETS STRUCTURES;
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- Arijit Mukherjee, 2002.
"Capacity Commitment and Licensing,"
- Aniruddha Bagchi & Arijit Mukherjee, 2011. "Commitment and excess capacity with licensing: an old debate with a new look," Journal of Economics, Springer, vol. 103(2), pages 133-147, June.
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