Uncertainty and entry deterrence
We study a model where capacity installation by an incumbent firm serves to deter others from entering the industry. We argue that uncertainty about demand or costs forces the incumbent to choose a higher capacity level than it would under certainty. This higher level diminishes the attractiveness of deterrence (Proposition 1) and, therefore, the range of parameter values for which deterrence occurs (Proposition 2).
Volume (Year): 14 (1999)
Issue (Month): 2 ()
|Note:||Received: July 10, 1997; revised version: November 21, 1997|
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