Entry deterrence in durable goods monopoly
Entry deterrence in durable goods monopoly
Some industries support Schumpeter's notion of creative destruction through innovative entrants. Others exhibit a single, persistent technological leadership. This paper explores a durable-goods monopolist threatened by entry via a new generation of the durable good.
It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. As a consequence, the industry tends to remain monopolized, with successive generations of the durable good being introduced by the incumbent monopolist. We show that entry deterrence by limit pricing can lead to underinvestment in innovation.
entry deterrence, durable goods monopoly, coasian dynamics, innovation
1-37
Hoppe, Heidrun C.
2e111a44-daf7-4309-b86e-445054855a7a
Lee, In Ho
f9fa5dda-198f-4857-8fe5-82023a389d3c
2000
Hoppe, Heidrun C.
2e111a44-daf7-4309-b86e-445054855a7a
Lee, In Ho
f9fa5dda-198f-4857-8fe5-82023a389d3c
Hoppe, Heidrun C. and Lee, In Ho
(2000)
Entry deterrence in durable goods monopoly.
Mimeo, .
Abstract
Some industries support Schumpeter's notion of creative destruction through innovative entrants. Others exhibit a single, persistent technological leadership. This paper explores a durable-goods monopolist threatened by entry via a new generation of the durable good.
It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. As a consequence, the industry tends to remain monopolized, with successive generations of the durable good being introduced by the incumbent monopolist. We show that entry deterrence by limit pricing can lead to underinvestment in innovation.
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Published date: 2000
Keywords:
entry deterrence, durable goods monopoly, coasian dynamics, innovation
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Local EPrints ID: 32979
URI: http://eprints.soton.ac.uk/id/eprint/32979
PURE UUID: b6fa64ca-5589-49c3-ad52-7baf988a9574
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Date deposited: 21 Jul 2006
Last modified: 11 Dec 2021 15:18
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Author:
Heidrun C. Hoppe
Author:
In Ho Lee
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