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Entry Deterrence in the Commons with Multiple Incumbents

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  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    ()
    (School of Economic Sciences, Washington State University)

Abstract

We examine an entry-deterrence model with multiple incumbents who strategically increase their individual appropriation in order to prevent entry. We find that, as the number of incumbents increases entry deterence can only be supported if the resource is abundant. Additionally, we show that entry deterrence yields a welfare improvement, relative to contexts of unthreatened entry, if few firms exploit a moderately abundant resource. When several firms compete, however, welfare losses can arise. Consequently, the presence of several incumbents recommends the implementation of policies that hinder entry under larger conditions than when a single incumbent exploits the commons.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Munoz/WP2012-1.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2012-1.

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Length: 27 pages
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Handle: RePEc:wsu:wpaper:munoz-12

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Keywords: Entry Deterrence; Multiple Incumbents; Common Pool Resources;

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  1. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2010. "Can Incomplete Information Lead to Under-exploitation in the Commons," Working Papers 2010-04, School of Economic Sciences, Washington State University.
  2. Mason, Charles F. & Sandler, Todd & Cornes, Richard, 1988. "Expectations, the commons, and optimal group size," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 99-110, March.
  3. Polasky, Stephen & Bin, Okmyung, 2001. "Entry Deterrence and Signaling in a Nonrenewable Resource Model," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 235-256, November.
  4. Apesteguia, Jose, 2006. "Does information matter in the commons?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 55-69, May.
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