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Limit Qualities and Entry Deterrence

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Author Info

  • Donnenfeld, S.
  • Weber, S.

Abstract

In this article, we investigate how the interplay of competition among incumbents and the magnitude of a potential entrant's setup cost determines the configuration of the array of products to be offered in a perfect Nash equilibrium. We show that incumbents can use limit qualities to deter entry. We also demonstrate that rivalry among incumbents may lead to excessive entry deterrence. Our analysis generates predictions about the correlation between the degree of product differentiation and the size of the entrant's setup costs.

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Bibliographic Info

Paper provided by York (Canada) - Department of Economics in its series Papers with number 92-4.

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Length: 27 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:yorkca:92-4

Contact details of provider:
Postal: YORK UNIVERSITY, DEPARTMENT OF ECONOMICS, 4700 KEELE ST-NORTH YORK ONTARIO H3J 1P3 CANADA.
Phone: (416) 736-5083
Fax: (416) 736-5987
Web page: http://dept.econ.yorku.ca/
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Related research

Keywords: behaviour ; industry ; economic equilibrium ; new products;

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Cited by:
  1. Mina Baliamoune & Stefan Lutz, 2009. "Preemption, Predation, and Minimum Quality Standards," ICER Working Papers 20-2009, ICER - International Centre for Economic Research.
  2. Acharyya, Rajat & Garcia-Alonso, Maria, 2009. "Parallel imports, drug innovation and international patent protection: a policy game," MPRA Paper 30159, University Library of Munich, Germany, revised 2010.
  3. Fabian Herweg, 2007. "Can price discrimination lead to product differentiation? A vertical differentiation model," Bonn Econ Discussion Papers bgse2_2007, University of Bonn, Germany.
  4. L. Lambertini & C. Scarpa, 1999. "Minimum Quality Standards and Predatory Behaviour," Working Papers 353, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. GABSZEWICZ, Jean & TAROLA, Ornella, 2010. "Product innovation and market acquisition of firms," CORE Discussion Papers 2010078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Yong-Hwan Noh & GianCarlo Moschini, 2006. "Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities," Center for Agricultural and Rural Development (CARD) Publications 05-wp403, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  7. Tse, Chung Yi, 2001. "Risky quality choice," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 185-212, January.
  8. Georg Götz, 2002. "Spatial Competition, Sequential Entry, and Technology choice," Vienna Economics Papers 0215, University of Vienna, Department of Economics.

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