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Strategic Investment and Market Integration

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  • Ganslandt, Mattias

    ()
    (The Research Institute of Industrial Economics)

Abstract

The competitive effect of international market integration in industries with imperfect competition is of great policy interest. This paper focuses on the link between monopolization and market segmentation. It presents a model of multi-market entry deterrence with or without market commitments. We derive sufficient conditions for entry deterrence with productive capacity in the multi-market game. It is shown that to deter entry in the multi-market game, the first-mover installs productions capacity which is strictly larger than the capacity needed to deter entry, if it is possible to assign parts of the capacity to specific markets. Market integration for production capacity may, thus, have a pro-competitive effect in international markets.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 560.

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Length: 30 pages
Date of creation: 27 Jun 2001
Date of revision:
Handle: RePEc:hhs:iuiwop:0560

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Keywords: Entry Deterrence; Multi-Market Competition; Market Integration;

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  1. Bunch, David S & Smiley, Robert, 1992. "Who Deters Entry? Evidence on the Use of Strategic Entry Deterrents," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 509-21, August.
  2. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  3. Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand-Edgeworth Approach," Purdue University Economics Working Papers 1062, Purdue University, Department of Economics.
  4. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
  5. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
  6. Brad Barham & Roger Ware, 1993. "A Sequential Entry Model with Strategic Use of Excess Capacity," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 286-98, May.
  7. Venables, Anthony J., 1990. "International capacity choice and national market games," Journal of International Economics, Elsevier, vol. 29(1-2), pages 23-42, August.
  8. Horn, H. & Shy, O., 1994. "Bundling and International Market Segmentation," Working Papers 369, Research Seminar in International Economics, University of Michigan.
  9. Kamien, Morton I & Schwartz, Nancy L, 1971. "Limit Pricing and Uncertain Entry," Econometrica, Econometric Society, vol. 39(3), pages 441-54, May.
  10. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
  11. Steven A. Matthews & Leonard J. Mirman, 1981. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Discussion Papers 494, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  13. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  14. Smiley, Robert, 1988. "Empirical evidence on strategic entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 167-180.
  15. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  16. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96.
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