multiple equilibria and deterrence in airline markets we use data from the us airline industry to estimate a model of entry deterrence we model the interaction among airlines as a repeated static game where we allow for a very general form of heterogeneity we consider a menu of three alternative games that describe the strategic interaction among airlines simultaneous and sequential move games and a sequential move game with deterrence investments following bernheim 1984 deterrence investments include all investment that raises barriers to entry and for which the incumbent must incur some investment costs we show that the profits that incumbents can make in the sequential game both with and without deterrence investments are larger than those that they can make if the game is played simultaneously thus we find that on average it is profitable for all firms to deter new entrants with the exception of united airlines remarkably united airlines was under bankruptcy protection during the period of analysis suggesting that its deterrence investments were not credible overall we find that the data is explained better by a model where firms make deterrence investments thus we cannot reject the hypothesis that incumbents deter entrants in the airline industry

language friction and partner selection in cross border r d alliance formation how does language friction affect alliance formation language friction is a form of cultural friction arising from structural differences in the respective languages used by potential partners to reason and solve problems together a little language friction may prompt partners to rethink solutions thereby enhancing collaboration but excessive friction may impede collaboration we develop a language friction index lfi to quantify relative differences in linguistic structure for any language pair utilizing a unique data set of semiconductor design activities 1988 2001 our empirical analysis finds an inverted u shaped relationship between partners lfi and the likelihood of cross border research and development rd 2 the effects of language friction are economically significant and strategically consequential 3 certain aspects of language friction occur independent of language proficiency and persist despite the use of lingua franca to reduce language barriers 4 linguistic diversity is an indirect marker of cognitive diversity which is useful in boosting creativity especially in first time collaborations 5 beyond r d alliances language friction may also influence other types of strategic interactions and organizational processes

economies of scale and barriers to entry dixit has recently presented a model in which established firms select capacity to discourage entry but cannot employ threats they would not rationally execute after entry entry deterrence in a slight modification of this model involves the classical limit price output under linear or concave demand however the capital cost of a firm of minimum efficient scale is an upper bound on the present value of the monopoly profit stream that can be shielded from entry it is argued that this suggests the general unimportance of entry barriers erected by scale economies

dialect transaction cost and intra national trade evidence from china growing evidence emphasizes the important role of network effects on bilateral trade this paper proposes a new factor dialect difference which decreases social network across regions may incre

challenges of existing in a market as a small low quality producer this paper explores the strategy of a small firm entering a monopolist s market thereby creating a duopoly market the small firm avoids competing with the larger incumbent firm by producing a lower quality product at a lower price the model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices qualities and profits although the strategy might allow the firm to enter and earn a profit the market conditions may make this position much less desirable to that of the large firm for several reasons in the case explored here where tastes for the product are uniformly distributed the small firm s profit is about six percent of that of the larger firm the smaller firm is more severely threatened by the entrance of a third firm furthermore even if the smaller firm can cut costs its position is not well suited for exploiting such increases in efficiencies

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

asset stock accumulation and sustainability of competitive advantage given incomplete factor markets appropriate time paths of flow variables must be chosen to build required stocks of assets that is critical resources are accumulated rather than acquired in strategic factor markets barney barney j 1986 strategic factor markets expectations luck and business strategy management sci october 1231 1241 sustainability of a firm s asset position hinges on how easily assets can be substituted or imitated imitability is linked to the characteristics of the asset accumulation process time compression diseconomies asset mass efficiencies inter connectedness asset erosion and causal ambiguity

political extremism in the presence of a free rider problem this paper provides an explanation for the emergence of political extremism in an environment in which a change in re gime requires an investment that benefits more than one player we show that in order to mitigate the effects of free riding players may choose extreme positions further we show that as the free rider problem becomes more severe both parties move to more extreme positions in the same direction

strategic investment and timing of entry the authors introduce competition over entry time into a sequential output choice model to show how profit differences will be dissipated this resolves a problem in the standard stackelberg model that the order of moves is exogenously specified yet an earlier position in the order is usually preferred to a later one if capacity costs are not too low the authors solution applies even if firms cannot commit to sell their entire output introducing positive capacity costs slightly modifies the static stackelberg results since endogenous cost asymmetries arise the framework therefore partially rehabilitates the stackelberg model copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bundling as an entry barrier in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to credibly defend both products without having to price low in each the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist although price discrimination provides a reason to bundle the gains are small compared with the gains from the entry deterrent effect i introduction in this paper we look at the case for bundling in an oligopolistic environment we show that bundling is a particularly effective entry deterrent strategy a company that has market power in two goods a and b can by bundling them together make it harder for a rival with only one of these goods to enter the market bundling allows an incumbent to defend both products without having to price low in each while it is still possible to compete by offering a rival bundle a monopolist can significantly lower the potential profits of a one product entrant without having to engage in limit pricing prior to entry we also show that bundling continues to be an effective pricing tool even if entry deterrence fails or if there is already an existing one product rival a company with a monopoly in product a and a duopoly in product b makes higher profits by selling an a b bundle than by selling a and b independently leveraging market power from a into b and accepting some one product competition against the bundle is better than using the monopoly power in good a all by itself since bundling mitigates the impact of competition on the incumbent an entrant can expect the bundling strategy to persist even without any commitment the traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist see stigler 1968 adams and yellen

free riding in noncooperative entry deterrence with differentiated products 1 introductionthis paper reexamines the phenomenon of free riding in entry deterrence when established firms in an oligopoly are unable to coordinate their entry preventing activities previous authors e g bernheim 1984 gilbert and vives 1986 waldman 1987 1991 appelbaum and weber 1992 have highlighted the public good aspect of noncooperative entry prevention if costly entry deterring actions are successfully undertaken by a proper subset of the incumbents then incumbents outside of that subset cannot be excluded from the benefits of deterred entry it is in this sense that entry deterrence acquires the nature of a public good this observation has prompted previous researchers to raise the free rider question with its associated welfare implications can there occur underinvestment in entry deterrence due to the incentive for each firm to free ride on the others costly entry preventing activities the free rider problem in entry deterrence is first mentioned in the sequential entry model of bernheim 1984 however though bernheim discusses the possibility of free riding in his model the free rider problem is not the main focus of his paper in fact as pointed out by waldman 1987 p 309 footnote 2 the author s discussion of the role of the free rider problem is somewhat vague as regards whether bernheim feels the free rider problem would ever be important in a noncooperative entry deterrence setting 1gilbert and vives 1986 is the first paper in which the underinvestment issue is explicitly addressed the authors define underinvestment in entry deterrence to be associated with one or more of the following a incumbents total profits are higher preventing than allowing entry but the unique industry equilibrium allows entry b either entry prevention or entry may be an industry equilibrium but incumbents profits are higher when entry is prevented c an established monopoly or colluding incumbents prevents entry in more situations than an established noncooperating oligopoly p 77 label a b and c as underinvestment of type 1 2 and 3 respectively gilbert and vives g v go on to show that in none of these respects is there underinvestment in their quantity setting homogeneous product model on the contrary they demonstrate a strong possibility of overinvestment g v consider a situation where symmetric noncooperative incumbents with constant marginal costs of production make credible commitments to outputs in the preentry stage 2 the entrant incurs a fixed entry cost if it enters the industry and makes its entry and output decision after observing the incumbents output choices consequently there exists a limit output which if jointly produced by the oligopoly deters entry 3 g v find that entry is prevented when limit outputs are small while entry is allowed for larger limit outputs for limit outputs in an intermediate range both allowing entry and preventing entry are equilibria they prove that in this intermediate range where both entry accommodating and entry preventing equilibria coexist the unique entry equilibrium pareto dominates every deterrence equilibrium in other words compared with any deterrence equilibrium there is typically a continuum of such equilibria the accommodation equilibrium yields strictly higher profits to every incumbent hence if the industry settles on an entry preventing equilibrium the implication is that overinvestment exists because by jointly reducing incumbents outputs and allowing entry every incumbent can be made better off this paper introduces product differentiation into the g v model and shows that sufficiently large amounts of product differentiation can generate underinvestment in entry prevention the intuition is straightforward consider an incumbent s profit in any entry deterring equilibrium where exactly the limit output is produced by the oligopoly

modeling the dynamics of strategic fit a normative approach to strategic change this study develops and tests a dynamic perspective on strategic fit drawing from contingency and resource based arguments in the strategy and organizational theory literatures we propose a distinctive analytical approach to identify environmental and organizational contingencies that should predict changes in a firm s strategy and the performance implications of such changes we test our model using extensive longitudinal data from over 4000 u s savings and loan institutions during a period when many s ls considered changing strategic direction the findings support our model of dynamic strategic fit specifically we find that 1 the timing direction and magnitude of strategic changes can be logically predicted based on differences in specific environmental forces and organizational resources and 2 organizations that deviated from our model s prediction of dynamic strategic fit i e changed more or changed less than our model prescribed experienced negative performance consequences we conclude by discussing the implications of our approach and findings for future research on strategic fit and strategic change copyright 2000 john wiley sons ltd

the conditioning effect of time on firm survival an industry life cycle approach in an effort to reconcile theoretical blind spots we integrated research in technology management organizational ecology and evolutionary economics the central premise underlying the resultan

oligopoly limit pricing we expand milgrom and roberts 1982 limit pricing model to allow for multiple incumbents each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent s preentry price we find that incumbents are unable to coordinate deception which results in a separating equilibrium in which preentry prices are not distorted further introducing the refinement of unprejudiced beliefs we show that the no distortion equilibrium is the only refined separating equilibrium plausible pooling equilibria fail to exist or involve downward distortions in preentry prices

choosing the competition and patent licensing this article examines licensing as a means of choosing the competitors which a patentee monopolist will face in the period after the patent expires the queue of entrants consists of two firms which differ in their relative strengths as competitors for example by size or level of marginal cost by structuring the industry to be composed of weak competitors the incumbent is able to prolong its dominant position in the industry after the patent expires examples are presented in which the evidence suggests that choosing the competition was an important motivation of the licensor s behavior

a two stage model of research and development with endogenous second mover advantages this paper describes a simple two stage model of research and development in which the winner of the research stage has the option of moving first in the development stage some unexpected results emerge in equilibrium the leader in the development stage invests less than each follower and is consequently least likely to collect the patent moreover the leader receives a lower expected payoff than each of the followers thus there are endogenous second mover advantages using a game of timing in which the identity of the stackelberg leader is determined to link the two stages i find that firms face quite different incentives in the research stage although the leader invests less than each follower in the research stage as well the leader enjoys higher expected revenue from the complete two stage game than does each follower the equilibrium is inefficient because there is a lag between the time at which research is completed and the time at which development is begun and because aggregate investment is inefficiently asymmetrically distributed across firms

entry deterrence and the free rider problem the public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant although incumbent firms act noncooperatively underinvestment in entry deterrence does not occur and in fact incumbents may find themselves in a pareto dominated arrangement in terms of profits by preventing entry

forgoing invention to deter entry abstract 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

pre emptive patenting joint ventures and the persistence of oligopoly abstract gilbert and newbery 1982 have examined pre emptive patenting and the persistence of monopoly the present paper considers pre emptive patenting when there are several incumbent firms rather than just one it is shown why the incumbent oligopolists behaving non cooperatively might fail to deter entry this suggests that a joint venture in r and d might be a useful entry deterring device insofar as it pools the incumbents incentives to prevent entry this is indeed the case for small innovations but for large innovations the formation of a joint venture weakens the incumbents incentive to innovate by removing the competitive stimulus between them

entry collusion and capacity constraints it is arguably true that no single topic has held more of a fascination for students of industrial organization than the issue of entry deterrence this issue has been analyzed from many perspectives including the role of advertising and imperfect information in deterring entry 1 14 18 19 incentives confronting a monopoly seller of durable goods 3 4 incentives in the context of sequential entry 2 9 dynamic aspects of entry deterrence 10 13 and the role of excess capacity in deterring entry 22 23 dixit 5 6 discussed the incentives for an incumbent firm to deter entry in the presence of sunk costs in his models a firm must sink some capital prior to entering the industry and this sunk cost creates an entry barrier any potential entrant must pay the sunk costs prior to entering and the incumbent can deter entry by reducing the stream of profits sufficiently so that the entrant s post entry profit flow cannot cover its sunk cost ware 24 adapted dixit s work by allowing for a three stage game following the incumbent s decision the entrant decides upon entry in stage two paying the sunk costs at that time in stage three if entry occurred the firms play a quantity choosing game formby and smith 7 argue that rather than deterring entry the incumbent firm often has an incentive to allow entry and then collude with the entrant in this context the post entry cartel is asymmetric with the incumbent producing the larger amount and realizing the higher profits

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

profiting from induced changes in competitors market values the case of entry and entry deterrence the authors resurrects an idea due to j hirshleifer 1971 by examining how one firm might profit by trading in the securities of other firms whose values are dependent upon the first firm s actions they focus on the case of entry can an entrant profit from trading in the securities of an incumbent firm and how does the availability of such trading profits affect the economics of entry and entry deterrence the authors results have implications for antitrust policy insider trading rules the williams act short selling rules whether companies should be publicly or privately held and the degree of diversification for companies copyright 1995 by blackwell publishing ltd

a theory of market structure with sequential entry this article sets out a theory of market structure with sequential entry we characterize the perfect nash equilibrium to the entry game in several propositions first equilibria never involve excess capacity second a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically i e with no further entry third the equilibrium number of firms is the smallest number that can deter entry fourth aggregate output in equilibrium is no smaller than the limit output we calculate some explicit solutions to the model and examine comparative static properties

waiting to imitate on the dynamic pricing of knowledge we study the problem of an inventor who brings to the market an innovation that can be legally imitated imitators may enter the market by imitating the innovation at a cost or by buying from the inventor the knowledge necessary to reproduce and use the invention the possibility of contracting dramatically affects the need for patent protection our results show that i imitators wait to enter the market and the inventor becomes a temporary monopolist ii the inventor sells knowledge through contracts that allow resale by the imitators and iii under certain conditions the inventor s payoff increases with the number of imitators

noncooperative entry deterrence uncertainty and the free rider problem previous authors who have considered the issue of noncooperative entry deterrence have not found the free rider problem to be a significant factor these authors however have only considered models in which the exact investment needed to deter entry is known with certainty in this paper i add uncertainty to the models investigated by these previous authors and demonstrate that the free rider problem can be significant but is not so in all cases that is for certain types of entry deterring investments the introduction of uncertainty causes the oligopoly to underinvest in entry deterrence however for other types no underinvestment result arises

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

oligopolistic entry deterrence under incomplete information recent work has investigated the effects of asymmetric information between an incumbent firm and a potential entrant this study extends the analysis to allow the initial market structure to be a noncooperative oligopoly we show that there is a bayesian nash equilibrium in which the incumbent firms although unable to collude strategically deter entry that would have occurred under complete information in contrast to the past limit pricing literature it is a high price that deters entry as it signals to the potential entrant that this is a high cost industry extending the model to allow for multiple potential entrants we find that increasing the degree of potential competition raises the preentry price and reduces the likelihood of entry

non cooperative entry deterrence in license auctions dynamic versus sealed bid we examine the impact of potential entry on incumbent bidding behavior in license auctions in both dynamic and sealed bid formats unlike sealed bid auctions dynamic auctions reveal information about the identities of potential winners and allow bidders to revise their bids this helps incumbents to coordinate their entry deterrence efforts if entry is sufficiently costly for each incumbent only the dynamic auction has an equilibrium where entry is deterred for sure numerical calculations suggest that regardless of how costly entry is for each incumbent sealed bid auctions can generate a higher probability of entry as well as a more efficient allocation

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

what drives the formation of global oil trade patterns abstract in this paper the spatial characteristics of current global oil trade patterns are investigated by proposing a new indicator moran f meanwhile the factors that influence the formation of oil trade patterns are identified by constructing four different kinds of spatial econometric models the findings indicate that most oil exporters have an obvious export focus in north america and a relatively balanced export in europe and the asia pacific region besides supply and demand factors technological progress and energy efficiency have also significantly influenced the oil trade moreover there is a spillover effect of trade flow among different regions but its impact is weak in addition oil importers in the same region have the potential to cooperate due to their similar import sources finally promotion of oil importers r d investments can effectively reduce the demand for global oil trade

a model of dynamic limit pricing with an application to the airline industry we develop a dynamic limit pricing model where an incumbent repeatedly signals information relevant to a potential entrant s expected profitability the model is tractable with a unique equilibriu

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

multilateral limit pricing in price setting games abstract in this paper we characterize the set of pure strategy undominated equilibria in differentiated bertrand oligopolies with linear demand and constant unit costs when firms may prefer not to produce when all firms are active there is a unique equilibrium however there is a continuum of non equivalent bertrand equilibria on a wide range of parameter values when the number of firms n is more than two and n 2 n 1 firms are active in each such equilibrium the firms that are relatively more cost or quality efficient limit their prices to induce the exit of their rival s when n 3 this game does not need to satisfy supermodularity the single crossing property or log supermodularity moreover the best responses might have negative slopes our main results extend to a stackelberg entry game where some established incumbents first set their prices and then a potential entrant sets its price

entry exit and imperfect competition in the long run an infinite horizon stochastic model of entry and exit with sunk costs and imperfect competition is constructed simple examples provide insights into 1 the relationship between sunk costs and industry concentration 2 entry when current profits are negative and 3 the relationship between entry and the length of the product cycle a subgame perfect nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite horizon equilibria this equilibrium has a relatively simple structure characterized by two numbers per finite history under very general conditions it tends to exhibit excessive entry and insufficient exit relative to a social optimum

entry sunk costs and market structure typically models that study the role of sunk costs suppose that incumbent firms face entry by a single firm each period in this paper the set of equilibrium market structures that result when all firms are free to enter or exit and set prices each period are characterized the effect of sunk costs on the market structure is examined and it is shown that sunk costs can take on various forms each having a different effect on the set of equilibrium market structures costs that are sunk due to the existence of product specific capital do not in general deter entry rather entry deterrence is a necessary outcome only when costs are sunk due to the time it would take to leave the market

the failing firm defense this paper evaluates the welfare consequences of the failing firm defense ffd in the eu and u s merger laws to this end i combine an oligopoly model with an endogenous valuations auction model the ffd is shown to work reasonably well for consumers unless small firms are too small the ffd may however lead to total surplus losses due to a least danger to competition ldc condition which favors small and thus possibly inefficient firms it is also shown that in a multi firm setting the ffd increases the incentive for predation only when the assets are industry specific

optimal cross licensing arrangements collusion versus entry deterrence this paper analyzes optimal cross licensing arrangements between incumbent firms in the presence of potential entrants the optimal cross licensing royalty rate trades off incentives to sustain a collusive outcome vis a vis incentives to deter entry with the threat of patent litigation we show that a positive cross licensing royalty rate which would otherwise relax competition and sustain a collusive outcome dulls incentives to litigate against entrants our analysis can shed light on the puzzling practice of royalty free cross licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry deterrence mechanism

vertical product differentiation with entry abstract this paper examines the non cooperative behaviour of established firms that compete in product quality and prices while foreseeing the effects of their rivalry on the decisions made by the later entrants we prove an existence and uniqueness of the equilibrium and show that the dominant firms engage in maximal product differentiation i e select the highest and lowest technologically feasible qualities later entrant however always selects an intermediate quality moreover we show that the equilibrium configuration is identical to that generated by perfect foresight equilibrium in a model of sequential entry furthermore the profits earned by each firm are ranked in the same order as the qualities implifying that the later entrant despite being the last mover ends up with higher profits and larger market share than one of the incumbents

the role of multiple potential entrants sequential entry in noncooperative entry deterrence a number of authors have recently considered whether the free rider problem is exhibited in models characterized by multiple potential entrants sequential entry bernheim 1984 and eaton and ware 1987 find that the free rider problem is not an important factor while mclean and riordan 1989 find that it is in this article i identify a general property whose presence is important for whether a model of noncooperative entry deterrence exhibits a free rider problem and in this way help clarify why the above mentioned authors reach these diverse conclusions the article also demonstrates that quite plausible changes in the specifications of both bernheim and eaton and ware lead to incumbent firms underinvesting in entry deterrence

intertemporal price competition alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria one which we call disciplined arises when products are close substitutes another which we call spontaneous emerges when products are more differentiated in disciplined equilibria an implicit threat to cut price further in response to an initial price cut supports quite collusive outcomes which become less collusive as product differentiation increases in spontaneous equilibria no such threat is needed consumers in the smaller market tend to pay a higher price as do consumers served by the more efficient firm copyright 1990 by the econometric society

endogenous timing with infinitely many firms abstract a model with constant marginal costs is considered where firms choose first a period for production and then the amount to produce when competing in the market according to the resulting timing decisions multiple equilibria arise allowing for infinitely many industry output configurations encompassing one limit output dominant firm and the cournot equilibrium with free entry as extreme cases at each of these equilibria a firm produces a positive amount only if this firm commits to produce at period one both stackelberg and cournot like outcomes are sustainable as equilibria however when the number of leaders is given production at subsequent periods is always prevented and industry output is sometimes larger than the entry preventing level

strategic deterrence of sequential entry into an industry industrial entry deterrence is typically studied in a setting where an established firm or firms confront and attempt to deter a single potential competitor during the evolution of most industries however a sequence of firms enters or attempts to enter at distinct points in time consideration of issues arising from sequential entry fundamentally alters the qualitative nature of the deterrence decision undertaken by incumbent firms within a sequential setting counterintuitive behavior may be observed specifically numerous government policies designed to decrease industrial concentration penalties for anticompetitive practices subsidization of entry consent decrees restructuring industries may have the opposite effect

do language barriers affect trade abstract language barriers may be more important to international trade than previously thought the language barrier index a newly constructed variable that uses detailed linguistic data is used to show that language barriers are significantly negatively correlated with bilateral trade

strategic entry deterrence recent developments in the economics of industry this paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence starting from bain s 1956 classical analysis a simple two stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem commitments credible threat and sub game perfection are illustrated in this context the various strategic variables that an incumbent firm can use to bar entry are discussed the issue of whether a group of incumbents can noncooperatively deter entry is taken up and some empirical evidence is reviewed copyright 1989 by blackwell publishers ltd

defending against rival innovation we analyze how an incumbent defends its competitive advantage with a focus on the under examined methods of actively defending against the threats posed by rival innovation we describe delineate and analyze the set of such defenses and their likely effects the set of such defenses differs substantially from many standard defenses such as those aimed at defeating the threat of imitation the further study of these pre emptive innovation defenses is important because these defenses are different and because they can substantially affect the sustainability of firm profits and the pace of different of types of innovation

value of reputation in the chain store game with multiple incumbents abstract we extend the basic chain store game to the two incumbent case a highly stylized model is developed to analyze incentives of incumbent firms to maintain reputation for toughness entry deterrence has a public good property since maintaining reputation is costly each incumbent has an incentive to free ride on the entry deterring activities of its counterpart as a result of these incentives both incumbents accommodate when they both have a relatively high initial reputation for toughness this extreme form of underinvestment in entry deterrence becomes less likely as the number of markets with potential entry increases we also demonstrate that an incumbent s payoff is a decreasing function of its reputation over a large range of parameters this result stands in sharp contrast to the existing versions of the chain store game where high reputation for toughness always benefits a weak incumbent

second mover advantages in the strategic adoption of new technology under uncertainty abstract this paper introduces technological uncertainty into a timing game of new technology adoption it is shown that the timing neither necessarily involves first mover advantages in precommitment equilibria reinganum review of economic studies xlviii 1981 395 405 nor rent equalization due to the threat of preemption fudenberg and tirole review of economic studies lii 1985 383 401 rather there may be second mover advantages because of informational spillovers furthermore the model predicts that the equilibrium payoffs will typically be discontinuous and non monotonic in the probability that the new technology is profitable a welfare analysis reveals several market failures and suggests that policy intervention should adequately depend on the nature of uncertainty and the rate of technological progress

network competition and entry deterrence we develop a model of logit demand that extends to a multi firm industry the traditional duopoly framework of network competition firstly we show that incumbents establish inefficiently the reciprocal access charge below cost when they compete in prices but they behave efficiently if they compete in utilities secondly we study how incumbents determine the industry wide access charge under the threat of entry we show that incumbents may accommodate all possible entrants only a group of them or may completely deter entry when entry deterrence is the preferred option incumbents distort the access charge upwards

colluding on excluding abstract in an oligopoly characterized by barriers to re entry a finite horizon complete information convex costs and the presence of three identical firms i show that in subgame perfect equilibrium two of them the predators can choose to charge an initial price that is so low that the third the prey decides to exit immediately in this predatory pricing equilibrium the predators can enjoy higher profits than in the best collusive equilibrium with three firms thus a coalition of two firms can benefit from colluding on excluding

a note on the free rider problem in oligopoly abstract in this paper we study the free rider problem in oligopoly within a general model of entry deterrence under uncertainty we show that precommitments by incumbents impose both direct and indirect externalities on other incumbents the nature of these externalities depends on the nature of the precommitments specifically relative to the collusive solution precommitments that make incumbents soft tough with respect to the entrant tend to be too high too low whereas those that are public goods public bads with respect to other incumbents tend to be too low too high

delegation market share and the limit price in sequential entry models abstract we construct a model of equilibrium market structure with sequential entry in which firms have u shaped average cost curves the equilibrium is characterized completely in the case of linear demand and quadratic costs in particular the trade off between the incentive to delegate the costs of entry deterrence and the market share advantages of investment by early entrants is fully determined we determine the circumstances under which delegation occurs whether firms delegated the task of entry deterrence find it costly or not is shown to depend in a parametric way on the limit price we show that the strategic equilibrium is socially inefficient relative to the free entry cournot equilibrium

equilibrium entry patterns under uncertainty abstract in this paper we develop a model in which incumbency patterns are determined endogenously we consider a two period duopoly game under uncertainty and show that the equilibrium entry patterns are determined by the costs and benefits of early entry and the strategic interactions between the firms we also show that under quite plausible cost conditions incumbency may not arise as an equilibrium pattern of the duopoly game

stackelberg competition with endogenous entry i characterise endogenous market structures where leaders have a first mover advantage and entry is endogenous leaders are always more aggressive than the followers independently from strategic substitutability or complementarity under quantity competition leaders produce more than any follower and i determine the conditions for entry deterrence high substitutability and non increasing marginal costs under price competition leaders set lower prices than the followers the opposite than with an exogenous number of firms in contests leaders invest more than each follower in all these cases a leadership improves the allocation of resources compared to the nash equilibrium with endogenous entry this article studies endogenous market structures where a firm has a first mover advantage in the sense of stackelberg 1934 on the other firms and entry in the market is endogenous the article characterises the equilibrium of these endo genous market structures and provides welfare analysis for some of the applications these market structures emerge in many sectors which are substantially competitive a fringe of firms is ready to enter whenever there is a profitable opportunity but where some incumbent firms have a competitive advantage over the followers because of technological historical or legal reasons or just because entry was not possible at an earlier stage and choose their strategies before them 1 while symmetric models of strategic interactions have been widely studied in the presence of endogenous entry in a marshallian tradition 2 traditional models with incumbent firms facing a competitive fringe of entrants have been mostly limited to the analysis of markets with homogeneous goods and entry deterrence for instance in the theories of limit pricing and of contestable markets baumol et al 1982 more recently vives 1988 has analysed games with sequential entry of multiple firms but without endogenising the entry process see also anderson and engers 1992 1994

native language and acquired language as determinants of product level trade the present paper estimates response parameters of bilateral export flows at the disaggregated harmonised system 6 digit level to two fractional variables reflecting the language commonality between exporting and importing countries common native language versus common acquired language in particular the response to common acquired language is shown to vary systematically with the price and trade elasticity of demand across products and with the degree of product differentiation and competition across products these findings support the notion that there is a relatively important role to play for foreign language acquisition in stimulating cross border trade and international integration which are known to induce average consumer gains

delaying or deterring entry a game theoretic analysis abstract few models in the entry literature consider interaction among potential entrants or how the incumbent can exploit this interaction i present a predation model in which incomplete information about the incumbent gives each entrant an incentive to enter after others in order to observe what happens to them upon entry the incumbent can exploit this incentive to delay entry thus the model leads to endogenous delayed entry rather than entry deterrence only the interaction of the entrants leads to surprising ambiguities for example lowering the incumbent s payoff to predation for all types can increase the probability of predation slowing entry

entry for buyout the possibility of buying out an entrant has an important effect on entry deterrence entrants can blackmail the incumbent by threatening to keep prices low and buyout can make entry profitable which otherwise would not be in particular the entry deterrence policy of excess capacity to reduce the post entry price can not only fail but work against the incumbent the presence of multiple oligopolistic incumbents or multiple potential entrants however can discourage entry for buyout the long literature on entry deterrence has always assumed that if entry is made unprofitable no entry will occur but as followers of professional football may have suspected a clearly unprofitable competitor might rationally enter a market in the hopes of selling out to the incumbent i will model such a situation and try to show what conditions facilitate entry for buyout in the simplest entry deterrence model the incumbent successfully maintains monopoly by threatening to expand output and cut price after other firms enter but he succeeds only because potential entrants believe the threat if entrants are rational this strategy fails price warfare hurts the incumbent as well as the entrant so the monopolist would let the entrant have a share of profits after entry potential entrants foreseeing the accommodating response ignore the threat deterred entry is a nash equilibrium but not a perfect nash equilibrium it is nash because the entrant chooses to stay out given the incumbent s strategy of cutting prices after entry and the incumbent does not mind committing himself to cutting prices given that entry never occurs a perfect nash equilibrium is a set of strategies that is a nash equilibrium for every proper subgame if the game is started at any of the nodes of the game tree including those off the equilibrium path the strategies the agents pick to maximize their objective function from that node onwards must be part of the equilibrium strategy for the entire game in the subgame which begins after entry has already occurred the incumbent would not choose to cut prices so cutting prices after entry is not part of a perfect equilibrium in the perfect equilibrium entry occurs and is accommodated

industry structure with sequential technology choice abstract noncooperative entry deterrence arises in a market where firms enter sequentially and irreversibly choose a technology in the case of delegated entry deterrence the earliest firms enter with a normal technology and pass on entry deterrence responsibilities to subsequent entrants in the case of partial entry deterrence the earlliest firms choose an inferior technology that allows some but not full entry of later firms with a normal technology in both cases entry is deterred in that the equilibrium number of firms is smaller than would prevail if all firms were to choose a normal technology

potential competition actual competition and economic welfare though the origins of anti trust legislation at least in the united states undoubtedly lie in late nineteenth century populist sentiments its current intellectual foundations rest on modern welfare economics these intellectual foundations provide more than just rhetoric as courts have increasingly relied on the testimony of economists to interpret and reinterpret the inevitably vague language of the legislation the reliance on modern welfare economics is somewhat paradoxical for the assumptions underlying the fundamental theorem of welfare economics are peculiarly ill suited to deal with competition in the central area to which anti trust is applied the industrial sectors of modern economies these sectors are characterized by important non convexities which admittedly present inherent problems for competition the competition that does take place is as likely to take the form of product and r d competition rather than price competition product competition plays no role in the conventional welfare paradigm which assumes a complete set of commodities and it is not that arrow and debreu simply forgot to include technical change in their formulations the natural assumptions underlying the analysis of the production marketing and utilization of knowledge are basically inconsistent with those underlying the arrow debreu model invited paper european economic association meetings copenhagen august 1987 financtal support from the national science foundation and the hoover institution is gratefully acknowledged the presence of non convexittes in production is central in explaining why only a ftnite subset of the set of possible commodities is in fact produced techmcal change is characterized by non convexities in its production radner and stiglitz 1984 if technology exhibits say constant returns to scale at a fixed technology when inputs devoted to r d are included it exhibits non convexities the value or information may increuse with the scale of production while conventional theory focuses on markets for homogeneous commodities each piece of new knowledge must be dinerent from previously produced knowledge knowledge has many of the properties of public goods it being both dificult and undesirable to exclude markets for knowledge are at best imperfect and as we have argued

a dynamic game of r and d patent protection and competitive behavior a theory of dynamic optimal resource allocation to r and d in an n firm industry is developed using differential games this technique represents a synthesis of the analytic methods previously applied to the problem static game theory and optimal control the use of particular functional forms allows the computation and detailed discussion of the nash equilibrium in investment rules this paper addresses the problem of resource allocation to research and development among the important issues that a firm engaging in r and d must evaluate are uncertainty regarding the feasibility and profitability of a particular innovation the possibility of a protracted development period the possibility that a rival firm may innovate first capturing either a patent or a significant share of the new market the possibility that a rival firm may imitate the innovation and appropriate some of the profits in the new market in what follows we will develop a theory of optimal resource allocation to research and development which incorporates the aspects of r and d enumerated above we will use a dynamic game theoretic analysis determining the nash equilibrium strategies for n identical firms the availability of perfect patent protection is shown to accelerate development of the innovation and the effect of increasing rivalry is addressed the impact of increasing rivalry on nash equilibrium investment in r and d depends upon the degree of appropriability of rewards if patent protection is perfect then increasing the number of nash rivals results in increased r and d effort however when imitation is rewarded the opposite may be true finally some notions of competitive and perfectly competitive equilibrium are examined in the context of the model developed below