AbstractIt is well-known in the IO literature that incumbent firms may want to deter entry by behaving as if they are efficient. In this paper we show that incumbents may sometimes prefer to encourage entry by mimicking the behaviour of a less efficient firm for the following reason. If the incumbent cannot deter potential efficient entrants, he may want to elicit entry by an inefficient firm who would not enter if he knows that the incumbent is efficient. The presence of the additional firm in the market prevents further entry. The incumbent then faces a less efficient competitor in the long run.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 10-02.
Length: 11 pages
Date of creation: Dec 2009
Date of revision:
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- 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-ALL-2010-02-13 (All new papers)
- NEP-BEC-2010-02-13 (Business Economics)
- NEP-COM-2010-02-13 (Industrial Competition)
- NEP-CTA-2010-02-13 (Contract Theory & Applications)
- NEP-ENT-2010-02-13 (Entrepreneurship)
- NEP-IND-2010-02-13 (Industrial Organization)
- NEP-TID-2010-02-13 (Technology & Industrial Dynamics)
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