Measuring Deterrence Motives in Dynamic Oligopoly Games

Limin Fang () and Nathan Yang ()
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Limin Fang: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
Nathan Yang: Dyson School of Applied Economics and Management, Cornell University, Ithaca, New York 14853

Management Science, 2024, vol. 70, issue 6, 3527-3565

Abstract: This paper presents a novel decomposition approach for measuring deterrence motives in dynamic oligopoly games. Our approach yields a formalized, scale-free, and interpretable measure of deterrence motives that informs researchers about the proportion for which deterrence motives account of all entry motives. In addition, the decomposition leads to a set of conditions for counterfactual analysis where hypothetical scenarios with deterrence motives eliminated can be explored. We illustrate the use of our measure and counterfactual by conducting an empirical case study about the dynamics of coffee chain stores in Toronto, Canada. The inferred deterrence motives suggest that a noticeable proportion of entry motives can be attributed to deterrence; it can be as high as 43% for the increasingly dominant coffee chain, Starbucks, in certain types of markets. Finally, counterfactual analysis confirms that deterrence motives are indeed associated with Starbucks’ aggressive presence as the number of its outlets and its market share are markedly lower once these motives are eliminated.

Keywords: chain stores; dynamic oligopoly games; entry and exit; dynamic discrete choice; industry dynamics; market power; deterrence; retail landscape and strategy (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:6:p:3527-3565

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