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A theory of entry dissuasion

Domenico Buccella () and Luciano Fanti

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: In an industry with homogeneous goods, this note compares the standard incumbent's strategic capacity choice vs the incumbent's pre-emptive payment (profit) transfer (PPT) strategy (i.e., preentry acquisition). It is shown that, via the transfer option, the incumbent holds its monopoly position "dissuading" the potential competitor entry for a range of fixed costs larger than under strategic capacity. Moreover, in that range, the monopolist via transfer ensures higher payoffs both for itself and the potential competitor. That is, in contestable markets, the incumbent can keep its dominant position in an easier way than standard models predict.

Keywords: Entry deterrence; Monopoly; Duopoly (search for similar items in EconPapers)
JEL-codes: L13 L21 (search for similar items in EconPapers)
Date: 2020-12-01
New Economics Papers: this item is included in nep-com and nep-ind
Note: ISSN 2039-1854
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2020/265

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