Forgoing invention to deter entry

Anthony Creane, Kaz Miyagiwa

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

A monopoly facing potential entry may not want to develop an efficient technology even at zero R&D costs. Such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology-specific. Then the monopoly can reduce the entrant's post-entry profit to the point of deterrence by using the existing technology with which the entrant would enter. We show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate. These results hold both in quantity and price competition.

Original languageEnglish
Pages (from-to)632-638
Number of pages7
JournalInternational Journal of Industrial Organization
Volume27
Issue number5
DOIs
StatePublished - Sep 2009

Keywords

  • Correlation of strategies
  • Entry cost
  • Entry deterrence
  • Invention
  • Production uncertainty

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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