- 28 Downloads
In this paper, we investigate the possibility that a dominant firm will encourage rather than deter entry of a potential competitor. We find that entry can be encouraged by a dominant firm in order to induce a new entrant to resolve the demand uncertainty in a new market. We propose a specific incentive mechanism that the incumbent can use to encourage entry and find plausible circumstances under which entry encouragement is a dominant competitive strategy.
Key wordsEntry Demand Uncertainty Incentives Competitive Strategy
Unable to display preview. Download preview PDF.
- Abegglen, J., and G. Stalk. (1975).Kaisha, the Japanese Corporation. Harper and Row.Google Scholar
- Dixit, A. (1980). “The Role of Investment in Entry Deterrence,”Economic Journal 90, 95–106.Google Scholar
- Fudenberg, D., and J., Tirole. (1984). “The Fat-Cat Effect, The Puppy-Dog Ploy, and The Lean and Hungry Look,”American Economic Review, Papers and Proceedings 74, 361–366.Google Scholar
- Grossman, S., and O., Hart. (1980). “Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation,”The Bell Journal of Economics 11 (1), 42–64.Google Scholar
- Schmalensee, R. (1978). “Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry,”Bell Journal of Economics 9, 305–327.Google Scholar
- Shavell, S. (1979). “Risk Sharing and Incentives in the Principal and Agent Relationship,”Bell Journal of Economics 10 (1), 55–73.Google Scholar
- Spence, M. (1980). “Notes on Advertising. Economies of Scale and Entry Barriers,”The Quarterly Journal of Economics, 493–507.Google Scholar