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Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem

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  • Michael Waldman

Abstract

Previous authors who have considered the issue of noncooperative entry deterrence have not found the free rider problem to be a significant factor. These authors, however, have only considered models in which the exact investment needed to deter entry is known with certainty. In this paper I add uncertainty to the models investigated by these previous authors, and demonstrate that the free rider problem can be significant, but is not so in all cases. That is, for certain types of entry deterring investments the introduction of uncertainty causes the oligopoly to underinvest in entry deterrence; however, for other types no underinvestment result arises.

Suggested Citation

  • Michael Waldman, 1987. "Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 301-310.
  • Handle: RePEc:oup:restud:v:54:y:1987:i:2:p:301-310.
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    1. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-1172, September.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
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    11. B. Curtis Eaton & Richard G. Lipsey, 1981. "Capital, Commitment, and Entry Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 593-604, Autumn.
    12. Nti, Kofi O. & Shubik, Martin, 1981. "Noncooperative oligopoly with entry," Journal of Economic Theory, Elsevier, vol. 24(2), pages 187-204, April.
    13. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    14. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
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    Cited by:

    1. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
    2. Patrice CASSAGNARD & Pierre REGIBEAU, 2018. "Collective Entry Deterrence and Free Riding: Airbus and Boeing in China," Working Papers 2017-2018_11, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Jul 2018.
    3. Elie Appelbaum & Eliakim Katz, 2007. "Political extremism in the presence of a free rider problem," Public Choice, Springer, vol. 133(1), pages 31-40, October.
    4. repec:eee:gamebe:v:111:y:2018:i:c:p:250-273 is not listed on IDEAS
    5. Gopal Das Varma & Giuseppe Lopomo, 2010. "NON-COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 450-476, June.
    6. Tesoriere, Antonio, 2008. "Endogenous timing with infinitely many firms," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1381-1388, November.
    7. Polasky, Stephen & Mason, Charles F., 1998. "On the welfare effects of mergers: Short run vs. long run," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 1-24.
    8. Melkonyan, Tigran A., 2006. "Value of reputation in the chain-store game with multiple incumbents," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 425-448, March.
    9. Lalit Manral, 2010. "Demand competition and investment heterogeneity in industries based on systemic technologies: evidence from the US long-distance telecommunications services industry, 1984–1996," Journal of Evolutionary Economics, Springer, vol. 20(5), pages 765-802, October.
    10. repec:eee:mateco:v:73:y:2017:i:c:p:86-102 is not listed on IDEAS
    11. Michael Waldman, 1987. "Underinvestment in Entry Deterrence: When and Why," UCLA Economics Working Papers 456, UCLA Department of Economics.
    12. V Ghosal, 2004. "Pre-Emptive Investment Behaviour and Industry Structure," Economic Issues Journal Articles, Economic Issues, vol. 9(1), pages 47-68, March.
    13. Ikuo Ishibashi & Noriaki Matsushima, 2006. "Inviting entrants may help incumbent firms," Discussion Papers 2006-46, Kobe University, Graduate School of Business Administration.
    14. Biung-Ghi Ju, Seung Han Yoo, 2018. "Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity," Discussion Paper Series 1802, Institute of Economic Research, Korea University.
    15. Melkonian, Tigran A., 1998. "Two essays on reputation effects in economic models," ISU General Staff Papers 1998010108000012873, Iowa State University, Department of Economics.
    16. Elie Appelbaum & Eliakim Katz, 2003. "Firm Location Choice in the Presence of a Free Rider Problem," Working Papers 2003_6, York University, Department of Economics.
    17. Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
    18. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    19. Michael Waldman, 1988. "The Simple Case of Entry Deterrence Reconsidered," UCLA Economics Working Papers 517, UCLA Department of Economics.
    20. Tesoriere, Antonio, 2017. "Stackelberg equilibrium with many leaders and followers. The case of zero fixed costs," Research in Economics, Elsevier, vol. 71(1), pages 102-117.

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