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Free Riding in Noncooperative Entry Deterrence with Differentiated Products


  • Dan Kovenock

    () (Purdue University)

  • Suddhasatwa Roy

    () (Department of Economics, California State University)


We examine free riding and underinvestment in noncooperative entry deterrence in the Gilbert and Vives (1986) model with differentiated products. Our analysis proves that for products that are differentiated enough, when both entry allowing and entry deterring equilibria coexist, the symmetric entry deterring equilibrium may Pareto dominate the entry equilibrium. Hence, “coordination failure” underinvestment in entry prevention can occur. However, as claimed, the overinvestment result of Gilbert and Vives remains robust to moderate amounts of product differentiation. We also show that coordination failure underinvestment arises in a wide variety of entry deterrence models and does not rely on assumptions regarding strategic substitutability or complementarity of precommitments.

Suggested Citation

  • Dan Kovenock & Suddhasatwa Roy, 2005. "Free Riding in Noncooperative Entry Deterrence with Differentiated Products," Southern Economic Journal, Southern Economic Association, vol. 72(1), pages 119-137, July.
  • Handle: RePEc:sej:ancoec:v:72:1:y:2005:p:119-137

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    References listed on IDEAS

    1. Ruhm, Christopher J., 2000. "Parental leave and child health," Journal of Health Economics, Elsevier, vol. 19(6), pages 931-960, November.
    2. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, January.
    3. Blau, Francine D & Grossberg, Adam J, 1992. "Maternal Labor Supply and Children's Cognitive Development," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 474-481, August.
    4. Gjerdingen, Dwenda K. & Debra, Froberg, 1991. "Predictors of health in new mothers," Social Science & Medicine, Elsevier, vol. 33(12), pages 1399-1407, January.
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    Cited by:

    1. Persson, Lars, 2004. "Predation and mergers: Is merger law counterproductive?," European Economic Review, Elsevier, vol. 48(2), pages 239-258, April.
    2. repec:ebl:ecbull:v:4:y:2008:i:14:p:1-5 is not listed on IDEAS
    3. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-5.
    4. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, March.
    5. Mariotto, Carlotta & Verdier, Marianne, 2015. "Innovation and competition in Internet and mobile banking: an industrial organization perspective," Research Discussion Papers 23/2015, Bank of Finland.
    6. Appelbaum, Elie & Weber, Shlomo, 1992. "A note on the free rider problem in oligopoly," Economics Letters, Elsevier, vol. 40(4), pages 473-480, December.
    7. Carlotta MARIOTTO & Marianne VERDIER, 2015. "Innovation and Competition in Internet and Mobile Banking: an Industrial Organization Perspective," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(99), pages 129-146, 3rd quart.
    8. repec:bof:bofrdp:urn:nbn:fi:bof-201511261452 is not listed on IDEAS
    9. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," WHU Working Paper Series - Economics Group 08-01, WHU - Otto Beisheim School of Management.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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