Judo Economics: Capacity Limitation and Coupon Competition

Judith R. Gelman and Steven C. Salop

Bell Journal of Economics, 1983, vol. 14, issue 2, pages 315-325

Abstract: This article analyzes the effect of credible capacity limitation on the interaction between an incumbent and an entrant. The prospect of price competition deters entry by a less efficient firm with unlimited capacity. If, however, the entrant practices "judo economics" and limits its capacity sufficiently, it is in the incumbent's interest to accommodate entry. The entrant can increase its profits by selling rights (coupons) to its scarce discount output. If the entrant is less efficient, the incumbent will choose to serve coupon holders at the discount price. When this occurs, the entrant sells coupons but no output, and industry production is rationalized.

View citations in EconPapers

Downloads: (external link)
http://links.jstor.o ... O%3B2-A&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

Access Statistics for this article

More articles in Bell Journal of Economics from The RAND Corporation
Series data maintained by ().