Scope economies, entry deterrence and welfare

Cesaltina Pires
Authors registered in the RePEc Author Service: Margarida Catalão-Lopes

CEFAGE-UE Working Papers from University of Evora, CEFAGE-UE (Portugal)

Abstract: This paper develops a model where the incumbent may expand to a second related market so as to signal the existence of scope economies and deter potential entry. We show that the incumbent only expands to another market when scope economies are large enough. Thus expansion is indeed a signal of larger economies of scope and, for certain parameter values, it leads to entry deterrence.We show that the perfect bayesian equilibrium may involve entry accommodation, entry deterrence or a mixed strategy equilibrium. We investigate the welfare implications of prohibiting an entry deterrent expansion. In our model, such prohibition would always decrease consumer surplus. The welfare impact of preventing entry deterrence is ambiguous but negative for many parameter values.

JEL-codes: L14 L15 M37 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cfe:wpcefa:2012_11

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