Judo Economics in Markets with Asymmetric Firms

Daniel Cracau

No 130002, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: I study a game with one market incumbent and a small entrant in a duopoly with perfectly substitutable products. Firms face a sequential Bertrand competition. Limiting the initial capacity (Judo economics) is a plausible entry strategy for the small firm. If we, however, introduce asymmetry in production cost or product quality, capacity limitation can become obsolete. I derive thresholds as regards the cost and quality differences for the entrant's choice to voluntarily limit the production capacity in equilibrium. I study a market entry game with price competition and perfectly substitutable products. Limiting the initial capacity (Judo economics) is a plausible entry strategy. I show that under asymmetry in production cost or product quality, capacity limitation can become obsolete.

Keywords: Sequential Bertrand Competition; Judo Economics; Asymmetric Firms; Cost; Quality (search for similar items in EconPapers)
JEL-codes: D43 L11 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013-02
New Economics Papers: this item is included in nep-bec and nep-com
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Citations: View citations in EconPapers (1)

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http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_02.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Judo economics in markets with asymmetric firms (2013)
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