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Entry Deterrence In The Commons

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  • Charles F. Manson

    (Department of Economics, University of Wyoming)

  • Stephen Polasky

    (Department of Economics, Boston College)

Abstract

In this paper we analyze a model in which initially there is a single firm that harvests from a common property resource. The firm faces potential entry of a rival in the future. The costs of harvest from the resource is a function of the stock size. By drawing down the initial population, the monopolist credibly commits to a smaller future stock. Because this increases costs, in particular the entrant’s, it makes the post-entry equilibrium less profitable for the entrant. By drawing down the current stock sufficiently, the incumbent can make entry unprofitable. Of course this raises the monopolist’s costs as well; if there requisite first period harvest is sufficiently great, deterrence will prove unattractive. We analyze the conditions under which the incumbent firm would deter entry and when entry would be allowed. Further, we analyze the effect that potential entry has on the harvest rate both before and after the date of potential entry and whether or not potential entry is welfare improving.

Suggested Citation

  • Charles F. Manson & Stephen Polasky, 1993. "Entry Deterrence In The Commons," Boston College Working Papers in Economics 209, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:209
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    1. repec:eee:eecrev:v:99:y:2017:i:c:p:43-55 is not listed on IDEAS
    2. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2013. "Asymmetric information may protect the commons: The welfare benefits of uninformed regulators," Economics Letters, Elsevier, vol. 121(3), pages 463-467.
    3. Polasky, Stephen & Bin, Okmyung, 2001. "Entry Deterrence and Signaling in a Nonrenewable Resource Model," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 235-256, November.
    4. Ellefsen, Hans & Kronbak, Lone Grønbæk & Ravn-Jonsen, Lars, 2014. "On International Fisheries Agreements, Entry Deterrence and Ecological Uncertainty," Discussion Papers of Business and Economics 18/2014, University of Southern Denmark, Department of Business and Economics.
    5. Charles Mason & Stephen Polasky, 2002. "Strategic Preemption in a Common Property Resource: A Continuous Time Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(3), pages 255-278, November.
    6. Benchekroun, Hassan & Halsema, Alex & Withagen, Cees, 2010. "When additional resource stocks reduce welfare," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 109-114, January.
    7. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2011. "Would hotelling kill the electric car?," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 281-296, May.
    8. James A. Brander & M. Scott Taylor, 1997. "International Trade and Open-Access Renewable Resources: The Small Open Economy Case," Canadian Journal of Economics, Canadian Economics Association, vol. 30(3), pages 526-552, August.
    9. Brian R. Copeland & M. Scott Taylor, 2009. "Trade, Tragedy, and the Commons," American Economic Review, American Economic Association, vol. 99(3), pages 725-749, June.
    10. Espínola-Arredondo, Ana & Muñoz-García, Félix, 2011. "Can incomplete information lead to under-exploitation in the commons?," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 402-413.
    11. Mason, Charles F. & Phillips, Owen R., 1997. "Mitigating the Tragedy of the Commons through Cooperation: An Experimental Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 34(2), pages 148-172, October.
    12. Robin Mason & Timothy Swanson, "undated". "Entry Deterrence and Environmental Regulation," Economics Papers 1997-W9, Economics Group, Nuffield College, University of Oxford.
    13. Mason, Charles F. & Polasky, Stephen & Tarui, Nori, 2017. "Cooperation on climate-change mitigation," European Economic Review, Elsevier, vol. 99(C), pages 43-55.
    14. Brander, James A. & Scott Taylor, M., 1997. "International trade between consumer and conservationist countries," Resource and Energy Economics, Elsevier, vol. 19(4), pages 267-297, November.
    15. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    16. Fischer, Maria-Elisabeth & Irlenbusch, Bernd & Sadrieh, Abdolkarim, 2004. "An intergenerational common pool resource experiment," Journal of Environmental Economics and Management, Elsevier, vol. 48(2), pages 811-836, September.

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