Entry, Pricing, and Product Design in an Initially Monopolized Market
Steven Davis (),
Kevin Murphy and
Journal of Political Economy, 2004, vol. 112, issue S1, S188-S225
We analyze entry, pricing, and product design in a model with differentiated products. Market equilibrium can be "separating," with multiple sellers and a sorting of heterogeneous consumers across goods, or "exclusionary," with one seller serving all customer types. Entry into an initially monopolized market can occur because of cost reductions or product improvements, but entry need not lower the incumbent's price, improve efficiency, or raise consumer welfare. Postentry design incentives favor a softening of price competition and stronger market segmentation, whereas exclusionary design changes typically raise consumer welfare. Potential, as distinct from actual, entry always benefits consumers.
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Working Paper: Entry, Pricing and Product Design in an Initially Monopolized Market (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:112:y:2004:i:s1:p:s188-s225
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