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 ï¾“limit qualities.ï¾” 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 consumersï¾’ 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 Iowa State University, Department of Economics in its series Staff General Research Papers with number 12412.
Date of creation: 14 Sep 2005
Date of revision:
Publication status: Published in Review of Industrial Organization, November 2006, vol. 29, pp. 227-252
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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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.
- 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.
- 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-2005-09-29 (Agricultural Economics)
- NEP-ALL-2005-09-29 (All new papers)
- NEP-COM-2005-09-29 (Industrial Competition)
- NEP-ENT-2005-09-29 (Entrepreneurship)
- NEP-TID-2005-09-29 (Technology & Industrial Dynamics)
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