Entry Deterrence in the Presence of Learning-by-Doing

Ana Espinola-Arredondo and Felix Munoz-Garcia

No 2010-11, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper investigates a signaling entry deterrence model under learning-by-doing. We show that a monopolist’s practice of entry deterrence imposes smaller welfare losses (or larger welfare gains) when learning effects are present than when they are absent, making the intervention of antitrust authorities less urgent. If, however, the welfare loss associated to entry deterrence is still significant, and thus intervention is needed, our paper demonstrates that the incumbent’s practice of entry deterrence is easier to detect by a regulator who does not have access to accurate information about the incumbent’s profit function. Learning-by-doing hence facilitates the regulator’s ability to detect entry deterrence, thus suggesting its role as an “ally” of antitrust authorities.

Keywords: Learning-by-doing; Entry deterrence; Incomplete information; Spillovers (search for similar items in EconPapers)
JEL-codes: D82 D83 L12 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-06
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta, nep-ind and nep-reg
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