Free in-network pricing as an entry-deterrence strategy

Tingting He (), Dmitri Kuksov () and Chakravarthi Narasimhan ()
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Tingting He: Saint Anselm College
Dmitri Kuksov: University of Texas at Dallas
Chakravarthi Narasimhan: Washington University in St. Louis

Quantitative Marketing and Economics (QME), 2017, vol. 15, issue 3, No 3, 279-303

Abstract: Abstract This paper analyzes the entry-deterring power of free in-network pricing with multiple incumbents. Free in-network pricing may deter entry since it creates network externality that intensifies competition. One may expect that a particular entry-deterrent strategy adopted by all incumbents would have more entry-deterring power than when it is adopted by some incumbents only. However, we show that when free-in network plan has entry-deterrence power with two incumbent firms, sometimes one incumbent offering free in-network plan may have more entry deterrence power than both firms offering free in-network plans. In other words, we find that an asymmetric adoption of entry-deterrence strategies by the incumbent firms may be the best for entry deterrence. This result highlights the importance of the strategic choice of the pricing plan as a function of not only the likelihood/cost of entry but also of the plan choices of other firms, and may partially explain the asymmetric strategies used by competing firms.

Keywords: Game theory; Competitive strategy; Entry deterrence; Multi-part tariffs (search for similar items in EconPapers)
JEL-codes: D43 L10 L13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11129-017-9185-x

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