We introduce avoidable fixed costs into the capacity and entry model of Dixit (1980) to produce a coordination problem among multiple postentry equilibria. Elimination of weakly dominated strategies makes it possible for the entrant to play a knockout strategy, consisting of a large capacity commitment which selects the entrant's preferred postentry equilibrium and drives the incumbent from the market. The incumbent must respond to the knockout threat by using judo tactics, involving a reduction in its capacity commitment. In subgame perfect equilibria which are robust to elimination of weakly dominated strategies, the incumbent must accept a market share smaller than the entrant's if avoidable fixed costs are sufficiently high, or cede the market to the entrant if avoidable fixed costs are higher still.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
888.
Length: Date of creation: May 1990 Date of revision: Handle: RePEc:nwu:cmsems:888
Contact details of provider: Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014 Phone: 847/491-3527 Fax: 847/491-2530 Email: Web page: http://www.kellogg.northwestern.edu/research/math/ More information through EDIRC
Order Information: Email:
For technical questions regarding this item, or to correct its listing, contact: (Fran Walker).
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Gal-Or, Esther, 1985.
"First Mover and Second Mover Advantages,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
[Downloadable!] (restricted)
Kenneth L. Judd, 1983.
"Credible Spatial Preemption,"
Discussion Papers
577, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Other versions:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Luis M.B. Cabral & Thomas Ross, 2006.
"Are Sunk Costs A Barrier To Entry?,"
Working Papers
06-09, New York University, Leonard N. Stern School of Business, Department of Economics.
[Downloadable!]
Kyle Bagwell & Garey Ramey, 1990.
"Advertising and Coordination,"
Discussion Papers
903, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Other versions:
Did you know? You can create a compilation of all publications of a group of people, say alumni of a program, your students or memers of an association.