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Entry accommodation under multiple commitment strategies: judo economics revisited

Author

Listed:
  • BOCCARD, Nicolas

    () (Departament d'Economia, University of Girona, Spain)

  • WAUTHY, Xavier

    () (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accommodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.

Suggested Citation

  • BOCCARD, Nicolas & WAUTHY, Xavier, 2009. "Entry accommodation under multiple commitment strategies: judo economics revisited," CORE Discussion Papers 2009050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2009050
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2009_50.pdf
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    Cited by:

    1. Cracau, Daniel, 2013. "Judo economics in markets with asymmetric firms," Economics Letters, Elsevier, vol. 119(1), pages 35-37.

    More about this item

    Keywords

    entry; quality; differentiation; Bertrand-Edgeworth competition;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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