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Entry Deterrence in the Presence of Learning-by-Doing

Author

Listed:
  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    () (School of Economic Sciences, Washington State University)

Abstract

This paper investigates a signaling entry deterrence model under learning-by-doing. We show that a monopolist’s practice of entry deterrence imposes smaller welfare losses (or larger welfare gains) when learning effects are present than when they are absent, making the intervention of antitrust authorities less urgent. If, however, the welfare loss associated to entry deterrence is still significant, and thus intervention is needed, our paper demonstrates that the incumbent’s practice of entry deterrence is easier to detect by a regulator who does not have access to accurate information about the incumbent’s profit function. Learning-by-doing hence facilitates the regulator’s ability to detect entry deterrence, thus suggesting its role as an “ally” of antitrust authorities.

Suggested Citation

  • Ana Espinola-Arredondo & Felix Munoz-Garcia, 2010. "Entry Deterrence in the Presence of Learning-by-Doing," Working Papers 2010-11, School of Economic Sciences, Washington State University.
  • Handle: RePEc:wsu:wpaper:espinola-6
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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/WP2010-11.pdf
    File Function: First version, 2010
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    More about this item

    Keywords

    Learning-by-doing; Entry deterrence; Incomplete information; Spillovers;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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