Forgoing invention to deter entry
A monopoly facing potential entry may not want to develop an efficient technology even at zero R&D costs. Such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology-specific. Then the monopoly can reduce the entrant's post-entry profit to the point of deterrence by using the existing technology with which the entrant would enter. We show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate. These results hold both in quantity and price competition.
Year of publication: |
2009
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Authors: | Creane, Anthony ; Miyagiwa, Kaz |
Published in: |
International Journal of Industrial Organization. - Elsevier, ISSN 0167-7187. - Vol. 27.2009, 5, p. 632-638
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Publisher: |
Elsevier |
Keywords: | Invention Entry cost Entry deterrence Production uncertainty Correlation of strategies |
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