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Capacity, Entry and Demand Uncertainty

Author

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  • Poddar, S.

Abstract

In a a two period model of strategic entry deterrence (a la Dixit, 1980) where the incumbent firm moves before the entrant by installing capacity for production, in a (perfect) equilibrium excess capacity is not observed under a deterministic demand. The question whether this result remains valid under demand uncertainty is analyzed. It has been shown that the result of holding no excess capacity may not hold when there is a demand uncertainty. In connection to this, the other relevant issue that is also analyzed in this paper, is to see the impact of the distribution of demand uncertainty on uncumbent's decision, when it faces the choice to deter or accomodate the potential entrant.

Suggested Citation

  • Poddar, S., 1998. "Capacity, Entry and Demand Uncertainty," Papers 148, Indira Gandhi Institute of Development Research-.
  • Handle: RePEc:fth:indgan:148
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    Cited by:

    1. Arijit Mukherjee, 2002. "Capacity Commitment and Licensing," Industrial Organization 0211004, EconWPA.
    2. Aniruddha Bagchi & Arijit Mukherjee, 2011. "Commitment and excess capacity with licensing: an old debate with a new look," Journal of Economics, Springer, vol. 103(2), pages 133-147, June.

    More about this item

    Keywords

    OLIGOPOLIES ; STRATEGIC PLANNING ; MARKETS STRUCTURES;

    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

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