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Inviting entrants may help incumbent firms

Author

Listed:
  • Ikuo Ishibashi

    (Department of Economics, Aoyama Gakuin University)

  • Noriaki Matsushima

    (Graduate School of Business Administration, Kobe University)

Abstract

This paper provides an example that incumbent firms might allow potential entrants to enter a market. The market consists of two sub-markets: a high-end market and a low-end market. (i) If low-quality products are of no value to consumers in the high-end market, (ii) consumers in the low-end market will not be concerned about product quality; and (iii) if the low-end market is relatively small, then the entries of firms into the low-end market would be beneficial to the incumbent firms. To be more specific, entry into a certain market represents a commitment to prevent incumbent firms from fierce competition within the high-end market and guarantees higher profits to the incumbent firms.

Suggested Citation

  • Ikuo Ishibashi & Noriaki Matsushima, 2006. "Inviting entrants may help incumbent firms," Discussion Papers 2006-46, Kobe University, Graduate School of Business Administration.
  • Handle: RePEc:kbb:dpaper:2006-46
    as

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    File URL: http://www.b.kobe-u.ac.jp/paper/2006_46.pdf
    File Function: First version, 2006
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    References listed on IDEAS

    as
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    Cited by:

    1. Ikuo Ishibashi & Noriaki Matsushima, 2009. "The Existence of Low-End Firms May Help High-End Firms," Marketing Science, INFORMS, vol. 28(1), pages 136-147, 01-02.

    More about this item

    Keywords

    entry; handover; heterogeneous consumers; commitment; oligopoly;

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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