Entry Deterrence in a Duopoly Market

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Entry Deterrence in a Duopoly Market

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Title: Entry Deterrence in a Duopoly Market
Author: Dana, James Dwight; Spier, Kathryn E.

Note: Order does not necessarily reflect citation order of authors.

Citation: James D. Dana Jr. and Kathryn E. Spier, Entry Deterrence in a Duopoly Market, 7(1) B. E. J. Econ. Anal. Pol. Article 19 (2007).
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Abstract: In a homogeneous good, Cournot duopoly model, entry may occur even when the potential entrant has no cost advantage and no independent access to distribution. By sinking its costs of production before negotiating with the incumbents, the entrant creates an externality that induces the incumbents to bid more aggressively for the distribution rights to its output. Each incumbent is willing to pay up to the incremental profit earned from the additional output plus the incremental loss avoided by keeping the output away from its rival. This implies that the incumbents are willing to pay up to the market price for each unit of available output. A sequential game in which the incumbents produce first is analyzed, and the conditions under which entry is deterred by incumbents' preemptive capacity expansions are derived.
Published Version: doi:10.2202/1935-1682.1653
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:10611782
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