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Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem

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  • Michael Waldman

    (UCLA)

Abstract

Previous authors who have considered the issue of noncooperative entry deterrence have not found the free rider problem to be a significant factor. These authors, however, have only considered models in which the exact investment needed to deter entry is known with certainty. In this paper I add uncertainty to the models investigated by these previous authors, and demonstrate that the free rider problem can be significant, but is not so in all cases. That is, for certain types of entry deterring investments the introduction of uncertainty causes the oligopoly to underinvest in entry deterrence; however, for other types no underinvestment result arises.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Michael Waldman, 1985. "Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem," UCLA Economics Working Papers 364, UCLA Department of Economics.
  • Handle: RePEc:cla:uclawp:364
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    File URL: http://www.econ.ucla.edu/workingpapers/wp364.pdf
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    References listed on IDEAS

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    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    2. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    3. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    4. Kamien, Morton I & Schwartz, Nancy L, 1971. "Limit Pricing and Uncertain Entry," Econometrica, Econometric Society, vol. 39(3), pages 441-454, May.
    5. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    6. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    7. Nti, Kofi O. & Shubik, Martin, 1981. "Noncooperative oligopoly with entry," Journal of Economic Theory, Elsevier, vol. 24(2), pages 187-204, April.
    8. B. Curtis Eaton & Richard G. Lipsey, 1981. "Capital, Commitment, and Entry Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 593-604, Autumn.
    9. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
    10. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    11. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
    12. Richard Gilbert & Xavier Vives, 1986. "Entry Deterrence and the Free Rider Problem," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 71-83.
    13. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-1172, September.
    14. Salop, Steven C, 1979. "Strategic Entry Deterrence," American Economic Review, American Economic Association, vol. 69(2), pages 335-338, May.
    15. Spulber, Daniel F, 1981. "Capacity, Output, and Sequential Entry," American Economic Review, American Economic Association, vol. 71(3), pages 503-514, June.
    16. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    17. B. Curtis Eaton & Richard G. Lipsey, 1980. "Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 721-729, Autumn.
    18. Stylianos Perrakis & George Warskett, 1983. "Capacity and Entry Under Demand Uncertainty," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 495-511.
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    Citations

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    Cited by:

    1. Elie Appelbaum & Eliakim Katz, 2007. "Political extremism in the presence of a free rider problem," Public Choice, Springer, vol. 133(1), pages 31-40, October.
    2. Tesoriere, Antonio, 2008. "Endogenous timing with infinitely many firms," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1381-1388, November.
    3. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
    4. Melkonyan, Tigran A., 2006. "Value of reputation in the chain-store game with multiple incumbents," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 425-448, March.
    5. Lalit Manral, 2010. "Demand competition and investment heterogeneity in industries based on systemic technologies: evidence from the US long-distance telecommunications services industry, 1984–1996," Journal of Evolutionary Economics, Springer, vol. 20(5), pages 765-802, October.
    6. Michael Waldman, 1987. "Underinvestment in Entry Deterrence: When and Why," UCLA Economics Working Papers 456, UCLA Department of Economics.
    7. V Ghosal, 2004. "Pre-Emptive Investment Behaviour and Industry Structure," Economic Issues Journal Articles, Economic Issues, vol. 9(1), pages 47-68, March.
    8. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    9. Tesoriere, Antonio, 2017. "Stackelberg equilibrium with many leaders and followers. The case of zero fixed costs," Research in Economics, Elsevier, vol. 71(1), pages 102-117.
    10. Gopal Das Varma & Giuseppe Lopomo, 2010. "NON-COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 450-476, June.
    11. Polasky, Stephen & Mason, Charles F., 1998. "On the welfare effects of mergers: Short run vs. long run," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(1), pages 1-24.
    12. repec:eee:mateco:v:73:y:2017:i:c:p:86-102 is not listed on IDEAS
    13. Ikuo Ishibashi & Noriaki Matsushima, 2006. "Inviting entrants may help incumbent firms," Discussion Papers 2006-46, Kobe University, Graduate School of Business Administration.
    14. Melkonian, Tigran A., 1998. "Two essays on reputation effects in economic models," ISU General Staff Papers 1998010108000012873, Iowa State University, Department of Economics.
    15. Elie Appelbaum & Eliakim Katz, 2003. "Firm Location Choice in the Presence of a Free Rider Problem," Working Papers 2003_6, York University, Department of Economics.
    16. Creane, Anthony & Miyagiwa, Kaz, 2009. "Forgoing invention to deter entry," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 632-638, September.
    17. Michael Waldman, 1988. "The Simple Case of Entry Deterrence Reconsidered," UCLA Economics Working Papers 517, UCLA Department of Economics.

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