Smart entry in local retail markets for electricity and natural gas

Florian Bartholomae (), Karl Morasch and Rita Orsolya Tóth

No 2009,3, Working Papers in Economics from Bundeswehr University Munich, Economic Research Group

Abstract: Consider a market with switching costs that is initially served by a monopolistic incumbent. How can a competitor successfully enter this market? We show that an offer to undercut the incumbent by a fixed margin serves this purpose. This strategy dominates traditional entry where the entrant just offers a lower price because it restrains the ability of the incumbent to block entry by limit pricing. We also consider adding a price ceiling to insure customers against future price increases. While this has a strategic advantage in markets with elastic demand, it is too risky if substantial cost increases are possible.

Keywords: Entry strategies; Price competition; Electricity; Natural gas; Markteintrittsstrategien; Preiswettbewerb; Strommarkt; Erdgasmarkt (search for similar items in EconPapers)
JEL-codes: D43 L11 L41 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ubwwpe:20093

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