Incentives to grow: multimarket firms and predation
Abstract: "Network industries with low sunk costs have been popular examples for the theory of contestable markets and spatial competition models. We argue that, due to the multimarket nature of operations, theories of predation are more relevant to...
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Abstract: "Network industries with low sunk costs have been popular examples for the theory of contestable markets and spatial competition models. We argue that, due to the multimarket nature of operations, theories of predation are more relevant to explain strategic behaviour. Building on well established reputation models our contribution is threefold. First, we use a more realistic sequencing of the game and strengthen the entry deterrence result. Second, we show that rational multimarket firms may use (the threat of) predatory entry to expand. Third, we allow strategic interaction of two multimarket firms and find that multimarket firms do not attack each other." (author's abstract)
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Endogenous switching costs and the incentive for high quality entry
Abstract: "This paper analyzes how the strategic use of switching costs by an incumbent influences entry, price competition and the entrant’s incentive to introduce a high quality product, in a market with vertically differentiated goods. We can...
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Abstract: "This paper analyzes how the strategic use of switching costs by an incumbent influences entry, price competition and the entrant’s incentive to introduce a high quality product, in a market with vertically differentiated goods. We can prove the existence of a unique subgame perfect equilibrium whose characteristics depends on the costs of developing quality. If these costs are low, the entrant strongly differentiates its product and price competition is tougher than without switching costs. If the costs of product's quality are in the middle range, the entrant differentiates its product less and each firm specializes on a group of customers. This implies a less competitive industry since both suppliers have market power over their purchasers. If the costs of differentiation are high enough, entry is deterred through the strategic use of switching costs. Furthermore we can show that the entrant always underinvests in quality when compared to the case of no switching costs. The equi
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