Inviting entrants may help incumbent firms

Ikuo Ishibashi and Noriaki Matsushima
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Ikuo Ishibashi: Department of Economics, Aoyama Gakuin University

No 2006-46, Discussion Papers from Kobe University, Graduate School of Business Administration

Abstract: This paper provides an example that incumbent firms might allow potential entrants to enter a market. The market consists of two sub-markets: a high-end market and a low-end market. (i) If low-quality products are of no value to consumers in the high-end market, (ii) consumers in the low-end market will not be concerned about product quality; and (iii) if the low-end market is relatively small, then the entries of firms into the low-end market would be beneficial to the incumbent firms. To be more specific, entry into a certain market represents a commitment to prevent incumbent firms from fierce competition within the high-end market and guarantees higher profits to the incumbent firms.

Keywords: entry; handover; heterogeneous consumers; commitment; oligopoly (search for similar items in EconPapers)
JEL-codes: L13 M21 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006-09
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Citations: View citations in EconPapers (1)

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