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Uncertainty and entry deterrence

Author

Listed:
  • Eric S. Maskin

    () (Department of Economics, Harvard University, Cambridge, MA 02138, USA)

Abstract

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).

Suggested Citation

  • 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.
  • Handle: RePEc:spr:joecth:v:14:y:1999:i:2:p:429-437
    Note: Received: July 10, 1997; revised version: November 21, 1997
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    Citations

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    Cited by:

    1. Kuno J.M. Huisman & Peter M. Kort, 2015. "Strategic capacity investment under uncertainty," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 376-408, June.
    2. Granero, Lluís M. & Ordóñez-de-Haro, José M., 2015. "Entry under uncertainty: Limit and most-favored-customer pricing," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 1-11.
    3. Krishnendu Ghosh DASTIDAR & YANO Makoto, 2017. "Corruption, Market Quality and Entry Deterrence in Emerging Economies," Discussion papers 17010, Research Institute of Economy, Trade and Industry (RIETI).
    4. Beladi, Hamid & Chakrabarti, Avik, 2012. "Stochastic processes and target zones revisited," Economics Letters, Elsevier, vol. 116(1), pages 34-36.
    5. Bert WILLEMS & Joris MORBEE, 2011. "Risk spillovers and hedging: why do firms invest too much in systemic risk?," Working Papers Department of Economics ces11.17, KU Leuven, Faculty of Economics and Business, Department of Economics.
    6. Dionne, Georges & Santugini, Marc, 2014. "Entry, imperfect competition, and futures market for the input," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 70-83.
    7. Lisa Planer-Friedrich & Marco Sahm, 2017. "Strategic Corporate Social Responsibility," CESifo Working Paper Series 6506, CESifo Group Munich.
    8. Wen, Xingang, 2017. "Strategic Capacity Investment under Uncertainty with Volume Flexibility," Discussion Paper 2017-019, Tilburg University, Center for Economic Research.
    9. Meng, Dawen & Tian, Guoqiang, 2013. "Entry-Deterring Nonlinear Pricing with Bounded Rationality," MPRA Paper 57935, University Library of Munich, Germany, revised May 2014.
    10. Gabszewicz, Jean & Tarola, Ornella & Zanaj, Skerdilajda, 2010. "On uncertainty when it affects successive markets," Economics Letters, Elsevier, vol. 106(2), pages 133-136, February.
    11. Planer-Friedrich, Lisa & Sahm, Marco, 2017. "Strategic corporate social responsibility," BERG Working Paper Series 124, Bamberg University, Bamberg Economic Research Group.
    12. Jiong Sun & Laurens G. Debo & Sunder Kekre & Jinhong Xie, 2010. "Component-Based Technology Transfer in the Presence of Potential Imitators," Management Science, INFORMS, vol. 56(3), pages 536-552, March.
    13. Arnold, Jan & Minner, Stefan, 2011. "Financial and operational instruments for commodity procurement in quantity competition," International Journal of Production Economics, Elsevier, vol. 131(1), pages 96-106, May.
    14. Kort, Peter M. & Wrzaczek, Stefan, 2015. "Optimal firm growth under the threat of entry," European Journal of Operational Research, Elsevier, vol. 246(1), pages 281-292.
    15. Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
    16. Wen, Xingang, 2017. "Investment under uncertainty : Timing and capacity optimization," Other publications TiSEM 47363df4-fc3e-46b8-b7bd-a, Tilburg University, School of Economics and Management.
    17. repec:kap:qmktec:v:16:y:2018:i:2:d:10.1007_s11129-017-9195-8 is not listed on IDEAS

    More about this item

    Keywords

    Entry deterrence; Uncertainty; Capacity.;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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