Weak entrants are welcome

This paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market. Suppose that the incumbent can deter entry of the weak firm, but cannot deter entry of the strong firm by itself. Then the incumbent may allow entry of the weak...

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Bibliographic Details
Published in:International journal of industrial organization 2000-08, Vol.18 (6), p.975-984
Main Author: Ashiya, Masahiro
Format: Article
Language:English
Subjects:
Commitment
Competition
Dominant firm
Economic models
Enterprises
Entry deterrence
Foreign enterprises
Market entry
Mathematical models
Product differentiation
Protection
Studies
Trade liberalization
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Summary:This paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market. Suppose that the incumbent can deter entry of the weak firm, but cannot deter entry of the strong firm by itself. Then the incumbent may allow entry of the weak firm and use it to alter the strong firm’s entry decision. The present paper formalizes this idea, and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization. The idea also explains why a dominant firm lets fringe firms be in the market.
ISSN:0167-7187
1873-7986
DOI:10.1016/S0167-7187(99)00021-1