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Forgoing invention to deter entry

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  • Creane, Anthony
  • Miyagiwa, Kaz

Abstract

A monopoly facing potential entry may not want to develop an efficient technology even at zero R&D costs. Such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology-specific. Then the monopoly can reduce the entrant's post-entry profit to the point of deterrence by using the existing technology with which the entrant would enter. We show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate. These results hold both in quantity and price competition.

Suggested Citation

  • Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:5:p:632-638
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    References listed on IDEAS

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    1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
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    8. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
    9. Eric S. Maskin, 1999. "Uncertainty and entry deterrence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 429-437.
    10. Takalo, Tuomas & Kanniainen, Vesa, 2000. "Do patents slow down technological progress?: Real options in research, patenting, and market introduction," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1105-1127, October.
    11. Joseph E. Harrington Jr., 1987. "Oligopolistic Entry Deterrence under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 211-231, Summer.
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    Cited by:

    1. Mizuno, Tomomichi & Takauchi, Kazuhiro, 2013. "Rules of origin and uncertain cost of compliance," MPRA Paper 44431, University Library of Munich, Germany.

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