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Inviting entrants may help incumbent firms

Listed author(s):
  • Ikuo Ishibashi

    (Department of Economics, Aoyama Gakuin University)

  • Noriaki Matsushima

    (Graduate School of Business Administration, Kobe University)

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.

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File URL: http://www.b.kobe-u.ac.jp/paper/2006_46.pdf
File Function: First version, 2006
Download Restriction: no

Paper provided by Kobe University, Graduate School of Business Administration in its series Discussion Papers with number 2006-46.

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Length: 19 pages
Date of creation: Sep 2006
Handle: RePEc:kbb:dpaper:2006-46
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Phone: 078-881-1212
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Web page: http://www.b.kobe-u.ac.jp/repec/kbb/

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