Entry accommodation under multiple commitment strategies: judo economics revisited

Nicolas M.M. Boccard () and Xavier Yves Wauthy

No 2009050, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accommodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.

Keywords: entry; quality; differentiation; Bertrand-Edgeworth competition (search for similar items in EconPapers)
JEL-codes: D43 L13 L51 (search for similar items in EconPapers)
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Date: 2009-08-01
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