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Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab

  • Abdolkarim Sadrieh

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Daniel Cracau

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

The theory of "Judo Economics" describes an optimal entry strategy for small firms. Using a capacity limitation, small firms force dominant market incumbents to accommodate. In this article, we study the power of Judo economics as an entry strategy in different market environments. We find experimental evidence supporting the theory in the original setting with a monopolistic, dominant market incumbent. When we introduce a cost advantage for small firms, profits go down. This can be explained by incumbents responding aggressive towards large entrants. For settings with multiple market incumbents, results are reversed. There, a cost advantage strengthens small firms and pricing below the incumbents' marginal cost provides the unique entry strategy.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_01.pdf
File Function: First version, 2011
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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 130001.

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Length: 32 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:mag:wpaper:130001
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  1. Duffy, John & Hopkins, Ed, 2005. "Learning, information, and sorting in market entry games: theory and evidence," Games and Economic Behavior, Elsevier, vol. 51(1), pages 31-62, April.
  2. García Díaz, Antón & Hernán González, Roberto & Kujal, Praveen, 2009. "List pricing and discounting in a Bertrand-Edgeworth duopoly," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 719-727, November.
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