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Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem

  • Michael Waldman

    (UCLA)

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. The author adds uncertainty to the models investigated by these previous authors, and demonstrates that the free-rider problem can be significant. 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. Copyright 1987 by The Review of Economic Studies Limited.

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File URL: http://www.econ.ucla.edu/workingpapers/wp364.pdf
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Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 364.

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Date of creation: 01 Sep 1985
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Handle: RePEc:cla:uclawp:364
Contact details of provider: Web page: http://www.econ.ucla.edu/

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  1. 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.
  2. Nti, Kofi O. & Shubik, Martin, 1981. "Noncooperative oligopoly with entry," Journal of Economic Theory, Elsevier, vol. 24(2), pages 187-204, April.
  3. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-72, September.
  4. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  6. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  7. 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.
  8. Salop, Steven C, 1979. "Strategic Entry Deterrence," American Economic Review, American Economic Association, vol. 69(2), pages 335-38, May.
  9. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  10. Spulber, Daniel F, 1981. "Capacity, Output, and Sequential Entry," American Economic Review, American Economic Association, vol. 71(3), pages 503-14, June.
  11. Perrakis, Stylianos & Warskett, George, 1983. "Capacity and Entry under Demand Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 495-511, July.
  12. 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.
  13. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  14. Kamien, Morton I & Schwartz, Nancy L, 1971. "Limit Pricing and Uncertain Entry," Econometrica, Econometric Society, vol. 39(3), pages 441-54, May.
  15. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215.
  16. 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.
  17. 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.
  18. Gilbert, Richard & Vives, Xavier, 1986. "Entry Deterrence and the Free Rider Problem," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 71-83, January.
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