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Entry under Capacity Limitation and Vertical Differentiation: Return of the Judo EconomicsXavier WauthyUniversity St. Louis; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) Nicolas BoccardUniversity of Girona November 10, 2008 Abstract: Shaked and Sutton (1982) and Gelman and Salop (1983) are best remembered for their neat conclusions: a limited quality or limited capacity is an effective tool to relax competition and facilitate entry in a market. We aim at comparing the respective merits of these two strategic commitments. We claim that capacity limitation is more effective than quality reduction, mainly because it acts directly upon the incumbent to reduce his aggressiveness in the final price competition whereas quality tools works indirectly trough consumer's willingness to pay.
Number of Pages in PDF File: 14 Keywords: Entry, Quality, Differentiation, Bertrand-Edgeworth Competition JEL Classification: D43, L13, L51 working papers seriesDate posted: November 12, 2008Suggested CitationContact Information
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