Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities
We analyze the potential entry of a new product into a vertically differentiated market. Here the entry-deterrence strategies of the incumbent firm rely on "limit qualities." The model assumes quality-dependent marginal production costs and considers sequential quality choices by an incumbent and an entrant. Entry-quality decisions and the entry-deterrence strategies are related to the fixed cost necessary for entry and to the degree of consumers' taste for quality. We detail the conditions under which the incumbent increases its quality level to deter entry. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well. Welfare is not necessarily improved when entry is encouraged rather than deterred.
|Date of creation:||May 2006|
|Contact details of provider:|| Postal: 578 Heady Hall, Ames, Iowa 50011-1070|
Phone: (515) 294-1183
Fax: (515) 294-6336
Web page: http://www.card.iastate.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kotaro Suzumura & Kazuharu Kiyono, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 157-167.
- L. Lambertini, 1994.
"Choosing Roles in a Duopoly for Endogenously Differentiated Products,"
191, Dipartimento Scienze Economiche, Universita' di Bologna.
- Lambertini, Luca, 1996. "Choosing Roles in a Duopoly for Endogenously Differentiated Products," Australian Economic Papers, Wiley Blackwell, vol. 35(67), pages 205-224, December.
- Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
- Dixit, Avinash K., 1978.
"A Model of Duopoly Suggesting a Theory of Entry Barriers,"
The Warwick Economics Research Paper Series (TWERPS)
125, University of Warwick, Department of Economics.
- Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
- Lutz, Stefan, 1996.
"Vertical Product Differentiation and Entry Deterrence,"
CEPR Discussion Papers
1455, C.E.P.R. Discussion Papers.
- Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
- Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
- Ulrich Lehmann-Grube, 1997. "Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 372-384, Summer.
- Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
- Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Shabtai Donnenfeld & Shlomo Weber, 1995.
"Limit Qualities and Entry Deterrence,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(1), pages 113-130, Spring.
- Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 103-121, February.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979.
"Price competition, quality and income disparities,"
Journal of Economic Theory,
Elsevier, vol. 20(3), pages 340-359, June.
- Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
- N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
- Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
- Hung, N. M. & Schmitt, Nicolas, 1988. "Quality competition and threat of entry in duopoly," Economics Letters, Elsevier, vol. 27(3), pages 287-292.
- Siebert, Ralph, 2003.
"Credible Vertical Preemption,"
CEPR Discussion Papers
4089, C.E.P.R. Discussion Papers.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
When requesting a correction, please mention this item's handle: RePEc:ias:cpaper:05-wp403. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.