The Profitable Suppression of Inventions: Technology Choice and Entry Deterrence
25 Pages Posted: 17 Dec 2007
Date Written: November 2007
AT&T was known for both funding a world-class research lab and delaying deployment of useful innovations from the lab. To explain this behavior we consider a model with an incumbent facing a potential entrant. The incumbent can choose from two technologies for production: old and new. The entrant's choice is limited to the old. We show that, under correlated production uncertainty, use of the common technology exposes the entrant to a greater risk. Therefore, the incumbent may suppress a newer, more efficient technology in favor of the old as a means to deter entry.
Keywords: technology choice, entry deterrence, production shocks, correlations of strategies
JEL Classification: D83, L12, L13
Suggested Citation: Suggested Citation