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Strategic Bidding By Potential Competitors: Will Monopoly Persist?

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  • Yongmin Chen

Abstract

Who will win the bidding to become the sole producer of a new product: the monopolist of a related product or a new entrant? When there exists potential entry to the monopolist’s existing business, the standard result that monopoly persists (Gilbert and Newbery, ‘Preemptive Patenting and the Persistence of Monopoly’, American Economic Review, 72, pp. 514–526, 1982) may or may not hold, depending crucially on how the new product relates to the existing product of the monopolist. The monopolist tends to win the bidding and to dominate both products if the two products are strategic complements; and the entrant tends to win the bidding if the two products are strategic substitutes.

Suggested Citation

  • Yongmin Chen, 2000. "Strategic Bidding By Potential Competitors: Will Monopoly Persist?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 161-175, June.
  • Handle: RePEc:bla:jindec:v:48:y:2000:i:2:p:161-175
    DOI: 10.1111/1467-6451.00116
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    Cited by:

    1. van den Berg, Vincent A.C. & Rouwendal, Jan, 2016. "Tender auctions with existing operators bidding," Economics of Transportation, Elsevier, vol. 6(C), pages 1-10.
    2. Chen, Yongmin, 2020. "Improving market performance in the digital economy," China Economic Review, Elsevier, vol. 62(C).
    3. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages 309-328, November.
    4. Chiara Fumagalli & Massimo Motta & Emanuele Tarantino, 2020. "Shelving or developing? The acquisition of potential competitors under financial constraints," Economics Working Papers 1735, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Yongmin Chen & Ruqu Wang, 2006. "Market Design with Correlated Valuations," Economica, London School of Economics and Political Science, vol. 73(292), pages 659-672, November.
    6. Norbäck, Pehr-Johan & Persson, Lars & Svensson, Roger, 2009. "Creative Destruction and Productive Preemption," Working Paper Series 799, Research Institute of Industrial Economics, revised 12 Sep 2014.
    7. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "An empirical test of the asymmetric models on innovative activity: who invests more into R&D, the incumbent or the challenger?," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 153-173, June.
    8. Julio Peña Torres & Gabriel Fernández Aguirre, 2008. "Disuasión de Entrada Vía Subastas: Free Riding o Colusión?," ILADES-UAH Working Papers inv215, Universidad Alberto Hurtado/School of Economics and Business.
    9. Pehr-Johan Norbäck & Lars Persson, 2009. "The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1261-1290, December.
    10. Norback, Pehr-Johan & Persson, Lars, 2006. "Endogenous asset ownership structures in deregulated markets," European Economic Review, Elsevier, vol. 50(7), pages 1729-1752, October.
    11. Czarnitzki, Dirk & Kraft, Kornelius, 2005. "License Expenditures of Incumbents and Potential Entrants: An Empirical Analysis of Firm Behavior," ZEW Discussion Papers 05-35, ZEW - Leibniz Centre for European Economic Research.
    12. Yongmin Chen & Michael H. Riordan, 2008. "Price‐increasing competition," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1042-1058, December.
    13. Saglam, Ismail, 2022. "Monopoly Persistence under the Threat of Supply Function Competition," MPRA Paper 111829, University Library of Munich, Germany.

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