Uncertainty and entry deterrence
Economic Theory, 1999, vol. 14, issue 2, 429-437
We study a model where capacity installation by an incumbent firm serves to deter others from entering the industry. We argue that uncertainty about demand or costs forces the incumbent to choose a higher capacity level than it would under certainty. This higher level diminishes the attractiveness of deterrence (Proposition 1) and, therefore, the range of parameter values for which deterrence occurs (Proposition 2).
Keywords: Entry deterrence; Uncertainty; Capacity. (search for similar items in EconPapers)
JEL-codes: D42 D43 D24 (search for similar items in EconPapers)
Note: Received: July 10, 1997; revised version: November 21, 1997
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