Capacity, Entry and Demand Uncertainty

Sougata Poddar ()

Working Papers from Indira Gandhi Institute of Development Research-

Abstract: In a a two period model of strategic entry deterrence (a la Dixit, 1980) where the incumbent firm moves before the entrant by installing capacity for production, in a (perfect) equilibrium excess capacity is not observed under a deterministic demand. The question whether this result remains valid under demand uncertainty is analyzed. It has been shown that the result of holding no excess capacity may not hold when there is a demand uncertainty. In connection to this, the other relevant issue that is also analyzed in this paper, is to see the impact of the distribution of demand uncertainty on uncumbent's decision, when it faces the choice to deter or accomodate the potential entrant.

Keywords: OLIGOPOLIES; STRATEGIC PLANNING; MARKETS STRUCTURES (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 1998
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Citations: View citations in EconPapers (2)

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