A strategic approach to wage rates as barrier to entry

Siegfried K. Berninghaus and Rainer Völker

No 244, Discussion Papers, Series I from University of Konstanz, Department of Economics

Abstract: In a seminal paper O. Williamson (1968) pointed out the relevance of wage rates as a barrier to entry. The crucial point in Williamson's argument is the technological difference between incumbents and entrants - as a potential entrant is supposed to produce with a more labor intensive technology than an incumbent it seems to be plausible to conclude that an increase in wage rates would be more disadvantageous to the potential entrant than to the incumbent. It is the main purpose to put the problem in a game theoretical framework that seems to be more appropriate to elaborate the strategic aspects. Then as our main result we can demonstrate that there exist deterrence equilibria even if the firms are technologically identical.

Date: 1989
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