Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities

Yong-Hwan Noh and GianCarlo Moschini

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We analyze the potential entry of a new product into a vertically differentiated market. Here the entry-deterrence strategies of the incumbent firm rely on ﾓlimit qualities.ﾔ The model assumes quality-dependent marginal production costs and considers sequential quality choices by an incumbent and an entrant. Entry-quality decisions and the entry-deterrence strategies are related to the fixed cost necessary for entry and to the degree of consumersﾒ taste for quality. We detail the conditions under which the incumbent increases its quality level to deter entry. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well. Welfare is not necessarily improved when entry is encouraged rather than deterred.

Date: 2005-09-14
New Economics Papers: this item is included in nep-agr, nep-com, nep-ent and nep-tid
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Published in Review of Industrial Organization, November 2006, vol. 29, pp. 227-252

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Journal Article: Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities (2006)
Working Paper: Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities (2006)
Working Paper: Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12412

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