The Use of Qualitative Research to Develop a Computational Model for Dynamic Entry Deterrence in an Emerging Market
AbstractThis paper uses qualitative and quantitative methods to develop a mathematical framework for the analysis of strategic entry deterrence. Through a case study analysis, qualitative research is integrated with a pre-existing model based on game theory to gain a greater understanding of an entry deterrence problem in a real life situation. Insights gained from Selten's well known chain store game and a related model proposed by Waagstein are used to highlight the critical importance of enhancing a stock of knowledge and goodwill through strategic investment in information technology based service development. This study proposes a method to evaluate the strategic investment profile that minimizes the total investment required for dynamic entry deterrence. The original contribution of this current work is to refine and adapt a deductive theoretical model to a real life situation. We extend current theories and develop a mathematical framework for entry deterrence through the application of findings from a qualitative case analysis of a single National Health Service pathology laboratory. The effect of a new entrant is modeled as a perturbation of a pre-existing stable Nash-Cournot equilibrium in an oligopoly-type market and is influenced by market forces subject to Government regulation. A major conclusion arising from this research is that the greatest potential for deterrence is investment that both enhances the peripheral attributes of the service provided and complements existing goodwill between purchaser and provider. Within the case study, information technology based service developments were recognized as having the greatest potential as a deterrent.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 1999 with number 124.
Date of creation: 01 Mar 1999
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- Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-83, May.
- Lee, C. B. & Murphy, W. D. & Fletcher, L. R. & Binner, J. M., 1998. "Dynamic entry deterrence in the UK pathology services market," European Journal of Operational Research, Elsevier, vol. 105(2), pages 296-307, March.
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