Abstract

http://ssrn.com/abstract=287744
 
 

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Entry, Pricing and Product Design in an Initially Monopolized Market


Steven J. Davis


University of Chicago; National Bureau of Economic Research (NBER)

Kevin M. Murphy


University of Chicago; National Bureau of Economic Research (NBER)

Robert H. Topel


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

October 2001

NBER Working Paper No. w8547

Abstract:     
We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market segmentation. Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.

Number of Pages in PDF File: 54

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Date posted: October 18, 2001  

Suggested Citation

Davis, Steven J. and Murphy, Kevin M. and Topel, Robert H., Entry, Pricing and Product Design in an Initially Monopolized Market (October 2001). NBER Working Paper No. w8547. Available at SSRN: http://ssrn.com/abstract=287744

Contact Information

Steven J. Davis (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Kevin M. Murphy
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7280 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert H. Topel
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7524 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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