Subsidizing the Competition
AbstractThis paper examines puzzling behavior in industries in which one firm is able to obtain a price premium and/or a dominant market share for a product which is identical to that of its rivals. It is shown that when there is learning by doing, economies of scale, network externalities, or reputational effects, the dominant firm's position may be enhanced by the presence of many weak competitors rather than a few strong ones. The dominant firm may therefore subsidize entry by giving away technical information, setting low licensing fees, or creating its own in-house competition.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number ecpap-96-02.
Length: 23 pages
Date of creation: 02 Jan 1996
Date of revision:
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Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
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.:
- Mukesh Eswaran, 1994. "Licensees as Entry Barriers," Canadian Journal of Economics, Canadian Economics Association, vol. 27(3), pages 673-88, August.
- Joseph Farrell and Nancy T. Gallini., 1986.
"Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition,"
Economics Working Papers
8618, University of California at Berkeley.
- Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November.
- Joseph Farrell and Nancy T. Gallini., 1987. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8760, University of California at Berkeley.
- Farrell, Joseph & Gallini, Nancy T., 1987. "Second-sourcing as a Commitment: Monopoly Incentives to Attract Competition," Department of Economics, Working Paper Series qt4zr9b9dr, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Farrell, Joseph & Gallini, Nancy T., 1986. "Second-sourcing as a Commitment: Monopoly Incentives to Attract Competition," Department of Economics, Working Paper Series qt8zs1p5cc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
- Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
- Nancy T. Gallini & Ralph A. Winter, 1985. "Licensing in the Theory of Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 237-252, Summer.
- Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
- Economides, Nicholas, 1996.
"Network externalities, complementarities, and invitations to enter,"
European Journal of Political Economy,
Elsevier, vol. 12(2), pages 211-233, September.
- Nicholas Economides, 1997. "Network Externalities, Complementarities, and Invitations to Enter," Industrial Organization 9701004, EconWPA.
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