Entry deterrence through credit denial

Firms in oligopoly can use debt to commit to a strategic position that negatively affects rival firms and improves profitability. In this paper, I show that an incumbent firm can deter entry by using debt to commit to such a low price that an entrant's lender will not finance entry, even if the entrant's expected profit from entry is positive. Empirical evidence shows that concentration and debt are positively related in several industries, indicating that debt may be used to reduce competition.     

Avoiding commercial piracy

In this paper we analyse the roles of the government and an incumbent in preventing the entry of a pirate, who tries to avoid being caught. The framework of analysis used is a sequential duopoly model of vertical product differentiation with price competition. We find that both the government and the incumbent have key roles in preventing the entry of pirates. We show that the government will not help the incumbent to become a pure monopolist, even if it installs an antipiracy system. It will let the pirate enter either as a follower or a leader, or encourage the incumbent to set a low enough price to successfully deter the pirate from entering the market, depending on its technology for monitoring commercial piracy. Finally, we find that the pirate decides to become a leader to avoid being caught by the incumbent and the government.     

Sustainable positive profit multiple-price strategies in contestable markets

One of the most important features of contestable market is the incumbent's inability to react to entry. While in the traditional literature, this prevents the incumbent from earning positive profits, in multiple price setting it allows him to make a binding commitment to maintain his strategy even if entry occurs. It is shown that as a result of this pre-commitment, any natural monopolist can find a multiple price strategy that yields positive profit, and prevents entry.     

Asymmetric access price regulation in telecommunications markets

In liberalized telecommunications markets, the incumbent typically enjoys several advantages over any entrant. Regulation in such asymmetric markets stimulates competition in the short and the long term if retail prices are low and the entrant's profits are high so that entry is encouraged. I show that asymmetric access price regulation with a cost-based access price for the incumbent and an access markup for the entrant is more successful than cost-based access price regulation applied to incumbent and entrant. This is a robust prediction with respect to the pricing strategies considered. Such asymmetric access price regulation is in accordance with European legislation.     

Entry Deterrence and the Efficient Component Pricing Rule

This note comments on the article 'Entry and Entry Deterrence under the New Access Code' by Amiti and Maddock, published in the Australian Economic Review, 3rd quarter 1996. It is found that Amiti and Maddock do not show that efficient component pricing by an incumbent vertically-integrated monopolist will deter socially efficient entry of a new competitor.     

Competition Between Exclusive Religions: The Counter‐Reformation As Entry Deterrence

This article sets forth a theory of competition between exclusive religions as an entry deterrence game, in which the incumbent may find it profitable not to accommodate but to deter the competitor's entry by precommitting to sufficient capacity expansion in the event of entry. If entry costs are high enough, deterrence is optimal and the incumbent remains a monopolist, although the entry threat distorts its effort upward. The model is then applied to the Catholic Church's reaction to the Protestant Reformation. It is argued that the model provides a better fit to the historical data of the Counter‐Reformation than the price‐cutting model proposed by economists Ekelund, Hébert and Tollison ( 2004 , 2006 ).     

UPSTREAM MARKET FORECLOSURE

This paper investigates how an incumbent monopolist can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyse two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that this situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case, we show that entry deterrence can be reached only through merger with the seller of the input.     

Entry Deterrence in a Unionized Oligopoly

We investigate wage determination between an incumbent firm and its labour union under threat from another firm entering its product market. In equilibrium, it may be optimal for a labour union of the incumbent firm to lower its wage demand. This may make it possible for the incumbent firm to maintain a higher employment level, in that the lower wages can help the firm deter the entry of a rival firm. This will yield a higher profit for the incumbent firm and a lower utility level for the labour union compared with those in an equilibrium with no threat of entry.
JEL Classification Numbers: J51, L10     

Preemptive Spacing With Vertical Differentiation When Input Quality is of Inelastic Supply

This paper examines a model of vertical differentiation in which an incumbent engages in preemptive spacing to prevent entry. Input quality is of fixed supply, and the incumbent prevents high-end entry by producing a product with all the quality available. It also commits to the production of a minimum-quality product to deter low-end entry. There is no entry in equilibrium, and the incumbent monopolist chooses to sell only its high-quality product. Commitment to the production of the minimum-quality product is used merely as a credible threat to vigorously compete should an entrant also produce a minimum-quality product.     

Strategic corporate social responsibility,imperfect competition,and market concentration

We examine the strategic use of corporate social responsibility (CSR) in imperfectly competitive markets. Before firms decide upon supply, they choose a level of CSR which determines the weight they put on consumer surplus in their objective function. First, we consider Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Finally, we show that CSR levels decrease as the degree of product heterogeneity increases in Cournot competition and are zero in Bertrand Competition.     

DYNAMIC PRICE COMPETITION WITH CAPACITY CONSTRAINTS AND A STRATEGIC BUYER

We analyze a simple dynamic durable good model. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition, making it possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller.     

History-based price discrimination and entry in markets with switching costs: A welfare analysis

We analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers’ purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.     

Pricing Access to a Monopoly Input

What price should downstream entrants pay a vertically integrated incumbent monopoly for use of its assets? Courts, legislators, and regulators have at times mandated that incumbent monopolies lease assets required for the production of a retail service to entrants in efforts to increase the competitiveness of retail markets. This paper compares two rules for pricing such monopoly inputs: marginal cost pricing (MCP) and generalized efficient component pricing rule (GECPR). The GECPR is not a fixed price, but is a rule that determines the input price to be paid by the entrant from the entrant's retail price. Comparing the retail market equilibrium under MCP and GECPR, the GECPR leads to lower equilibrium retail prices. If the incumbent is less efficient than the entrant, the GECPR also leads to lower production costs than does the MCP rule. If the incumbent is more efficient than the entrant, however, conditions may exist in which MCP leads to lower production costs than does the GECPR. The analysis is carried out assuming either Bertrand competition, quantity competition, or monopolistic competition between the incumbent and entrant in the downstream market.     

产品差异、转移成本和市场竞争

文章通过在豪泰林空间差异模型的基础上结合转移成本构建的博弈模型,主要研究转移成本和产品差异的存在对于企业价格竞争和策略性行为的影响。文章发现纯策略价格均衡是否存在以及在位企业容纳还是遏制竞争对手的潜在进入,都依赖于转移成本相对于产品差异程度的大小。     

Entry Deterrence and Entry Accommodation Strategies of a Multiproduct Firm Regulated with Dynamic Price Cap

In this paper we study the way a multiproduct firm, regulated through a dynamic price cap, can develop a price strategy that uses the regulatory policy to deter entry. We consider a firm that initially operates as a monopolist in two markets but faces potential entry in one of the markets. We conclude that the regulated firm can have the incentive to block the entry. This strategy leads to the reduction of the price in both markets. However, the final effect of the entry deterrence strategy on total consumer surplus is not always positive.     

High Price Strategy and Quality Signalling

I investigate a high price strategy by a durable‐goods producer for signalling the high quality of goods. It is assumed that two types of monopolists exist: high‐quality and low‐quality. The monopolist's type is assumed to be unknown to consumers in the first period. Before the beginning of the second period, a product reputation established in the past period enables consumers to recognize the real type of the monopolist. I show that there occurs a signalling equilibrium where the high‐quality type monopolist uses a high price strategy. An interaction between the new and old products peculiar to the durable‐goods markets plays an important role in the pricing strategy.     

Growth, Competition and Welfare

The impact of competition on growth and welfare is analysed by developing a model in which the number of firms, profit margins and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if inter-firm knowledge spillovers are neglected.     

Price-Matching Guarantees and Entry Deterrence under Incomplete Information

This paper studies price-matching guarantees in a market where entrant does not have perfect information about incumbent’s cost. The low-cost incumbent can adopt price-matching guarantees as a signal to distinguish itself from the high-cost type and thus effectively deter entry. On the other hand, the high-cost incumbent can successfully fool the potential entrant under certain conditions. Compared with the equilibriums in situations where the option of offering a price guarantee is not available, the use of this instrument either makes it easier for the low-cost incumbent to signal its cost, or expands the range of parameters over which the high-cost incumbent is able to deter entry successfully.     

Exclusive contracts when the incumbent can establish a direct retailer

This paper constructs a model of anticompetitive exclusive dealings with potential downstream competition. Unlike in previous studies, the incumbent can establish a direct retailer with some fixed payment and can offer an exclusive contract to a downstream buyer twice. We show that the existence of these two options helps the incumbent deter socially efficient entry and earn almost monopoly profits even in the absence of scale economies and downstream competition.