Forgoing invention to deter entry

Anthony Creane and Kaz Miyagiwa

International Journal of Industrial Organization, 2009, vol. 27, issue 5, pages 632-638

Abstract: A monopoly facing potential entry may not want to develop an efficient technology even at zero R&D costs. Such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology-specific. Then the monopoly can reduce the entrant's post-entry profit to the point of deterrence by using the existing technology with which the entrant would enter. We show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate. These results hold both in quantity and price competition.

Keywords: Invention; Entry; cost; Entry; deterrence; Production; uncertainty; Correlation; of; strategies (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:indorg:v:27:y:2009:i:5:p:632-638

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