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Lecture 8: Entry deterrence (Endogenous entry barrier (entry blockade (p…
Lecture 8: Entry deterrence
antitrust concerns
firm has market power => use that to limit the entry
firm does not have market power => create strategy to gain market power
exogenous entry barrier
post- entry competition
threat, promise and commitment
the role of a strategic move is to convert a threat or promise into a
commitment
strategic move
sequential move
communication
affect incentive
rational expectation
Sequential- move games
Stackelberg model
: one firm moves earlier than other firms
first- mover advantage
Endogenous entry barrier
entry blockade (p.25)
entry deterrence and entry accommodation (2 choices of the incumbent)
how to derive p.27
?
interpretation of kI (credible or not?)
Leverage Argument
setting
E decides whether to enter market B
I and E set their prices simultaneously (if entry occurs)
I chooses whether to bundle
separate selling (p.33)
bundling (p.34)
assumptions
A and B are independent
I must commit itself to selling in bundles
the strategy must deter entry of competitors in market B
Complementary goods (
entry can happen in both markets
)
separate selling
bundling
Other means to deter entry
limit pricing: set price < competitor's cost
brand proliferation (creates a lot of substitute products)