Second-sourcing as a Commitment: Monopoly Incentives to Attract Competition
The authors show that a new product monopolist may benefit from (delayed) competition if consumers incur setup costs. Setup costs create a dynamic consistency problem: the monopolist cannot guarantee low future prices once customers have incurred those costs. The authors show that, if customers anticipate this problem, the monopolist's profits can be improved through ex ante commitment to competition in the post-adoption market if setup costs are large. If setup costs are small, the monopolist can typically achieve the same level of profits without price commitment as with. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
(This abstract was borrowed from another version of this item.)
|Date of creation:||01 Oct 1987|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_econ/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:cdl:econwp:qt4zr9b9dr. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.