Entry under Capacity Limitation and Vertical Differentiation: Return of the Judo Economics
University St. Louis; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
University of Girona
November 10, 2008
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, L51working papers series
Date posted: November 12, 2008
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