Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities
AbstractWe analyze the potential entry of a new product into a vertically differentiated market. Here the entry-deterrence strategies of the incumbent firm rely on "limit qualities." The model assumes quality-dependent marginal production costs and considers sequential quality choices by an incumbent and an entrant. Entry-quality decisions and the entry-deterrence strategies are related to the fixed cost necessary for entry and to the degree of consumers' taste for quality. We detail the conditions under which the incumbent increases its quality level to deter entry. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well. Welfare is not necessarily improved when entry is encouraged rather than deterred.
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Bibliographic InfoPaper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 05-wp403.
Date of creation: May 2006
Date of revision:
entry deterrence; quality choice; vertical product differentiation.;
Other versions of this item:
- Yong-Hwan Noh & Giancarlo Moschini, 2006. "Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities," Review of Industrial Organization, Springer, vol. 29(3), pages 227-252, November.
- Noh, Yong-Hwan & Moschini, GianCarlo, 2005. "Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities," Staff General Research Papers 12412, Iowa State University, Department of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-AGR-2006-04-22 (Agricultural Economics)
- NEP-ALL-2006-04-22 (All new papers)
- NEP-COM-2006-04-22 (Industrial Competition)
- NEP-ENT-2006-04-22 (Entrepreneurship)
- NEP-IND-2006-04-22 (Industrial Organization)
- NEP-TID-2006-04-22 (Technology & Industrial Dynamics)
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