Vertical Product Differentiation, Entry-Deterrence Strategies, and Entry Qualities

Yong-Hwan Noh and GianCarlo Moschini

No 18410, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: We analyze the entry of a new product into a vertically differentiated market in which an entrant and an incumbent compete in prices. Here the entry-deterrence strategies of the incumbent firm rely on "limit qualities." With a sequential choice of quality, a quality-dependent marginal production cost, and a fixed entry cost, we relate the entry-quality decision and the entry-deterrence strategies to the level of entry cost and the degree of consumer heterogeneity. Quality-dependent marginal production costs in the model entail the possibility of inferior-quality entry as well as an incumbent's aggressive entry-deterrence strategies of increasing its quality level toward potential entry. Welfare evaluation confirms that social welfare is not necessarily improved when entry is encouraged rather than deterred.

Keywords: Industrial; Organization (search for similar items in EconPapers)
Pages: 32
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/18410/files/wp050403.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:18410

DOI: 10.22004/ag.econ.18410

Access Statistics for this paper

More papers in Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem
Bibliographic data for series maintained by AgEcon Search ().