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Strategic Entry and Potential Competition: Evidence from Compressed Gas Fuel Retail

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  • Pavan, Giulia
  • Pozzi, Andrea
  • Rovigatti, Gabriele

Abstract

We study the effect of competition on preemption incentives. An unexpected change in regulation in the Italian retail market for compressed natural gas fuel allows us to identify the potential entrants and creates exogenous variation in their number. We document that markets with a larger pool of potential competitors experience faster entry. We provide evidence suggesting that this occurs because a larger number of potential entrants raises firms' incentives to preempt.

Suggested Citation

  • Pavan, Giulia & Pozzi, Andrea & Rovigatti, Gabriele, 2017. "Strategic Entry and Potential Competition: Evidence from Compressed Gas Fuel Retail," CEPR Discussion Papers 12113, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12113
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    References listed on IDEAS

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    1. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1611-1633.
    2. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    3. Rossella Argenziano & Philipp Schmidt-Dengler, 2014. "Clustering In N-Player Preemption Games," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 368-396, April.
    4. Jennifer F. Reinganum, 1981. "Market Structure and the Diffusion of New Technology," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 618-624, Autumn.
    5. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
    6. Mitsuru Igami & Nathan Yang, 2016. "Unobserved heterogeneity in dynamic games: Cannibalization and preemptive entry of hamburger chains in Canada," Quantitative Economics, Econometric Society, vol. 7(2), pages 483-521, July.
    7. Argenziano, Rossella & Schmidt-Dengler, Philipp, 2013. "Competition, timing of entry and welfare in a preemption game," Economics Letters, Elsevier, vol. 120(3), pages 509-512.
    8. Rajshree Agarwal & Barry L. Bayus, 2002. "The Market Evolution and Sales Takeoff of Product Innovations," Management Science, INFORMS, vol. 48(8), pages 1024-1041, August.
    9. Philipp Schmidt-Dengler, 2006. "The Timing of New Technology Adoption: The Case of MRI," 2006 Meeting Papers 3, Society for Economic Dynamics.
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    Cited by:

    1. Pavan, Giulia, 2017. "Green Car Adoption and the Supply of Alternative Fuels," TSE Working Papers 17-875, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    potential entrants; preemption; retail fuel market;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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