Profit raising entry under mixed behavior

Zeitschrift für Nationalökonomie - Tập 138 - Trang 51-72 - 2022
Duarte Brito1,2, Margarida Catalão-Lopes3,4
1NOVA School of Science and Technology, Department of Applied Social Sciences (DCSA), Caparica, Portugal
2Nova School of Business and Economics, Universidade NOVA de Lisboa, Carcavelos, Portugal
3Instituto Superior Técnico, Universidade de Lisboa, Lisboa, Portugal
4CEG-IST, Instituto Superior Técnico, Universidade de Lisboa, Lisbon, Portugal

Tóm tắt

This paper provides a new theoretical justification for entry to raise incumbent’s profit. In an industry with product differentiation and when firms use different strategic variables, we show that entry by an additional price setter may end up benefitting another price setting incumbent. This is due to the response of existing quantity setters, who contract their output after entry. Such reduction in output, which creates demand for the price setters, may more than compensate the reduction in price that is brought about by entry, provided that the products are not sufficiently differentiated.

Tài liệu tham khảo

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