Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab

Abdolkarim Sadrieh and Daniel Cracau

No 130001, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: The theory of "Judo Economics" describes an optimal entry strategy for small firms. Using a capacity limitation, small firms force dominant market incumbents to accommodate. In this article, we study the power of Judo economics as an entry strategy in different market environments. We find experimental evidence supporting the theory in the original setting with a monopolistic, dominant market incumbent. When we introduce a cost advantage for small firms, profits go down. This can be explained by incumbents responding aggressive towards large entrants. For settings with multiple market incumbents, results are reversed. There, a cost advantage strengthens small firms and pricing below the incumbents' marginal cost provides the unique entry strategy.

Keywords: Judo economics; Market entry; Price competition; Capacity limitation; Experimental economics (search for similar items in EconPapers)
JEL-codes: D43 L11 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-02
New Economics Papers: this item is included in nep-com, nep-exp and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_01.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Coexistence of Small and Dominant Firms in Bertrand Competition: Judo Economics in the Lab (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:130001

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