Product Scope and Entry Deterrence in Technology Markets
41 Pages Posted: 13 Oct 2008
Date Written: 2002
We model an oligopolistic technology market in which firms endogenously choose product scope,fixed costs are affected by exogenous technological progress, and there may be threat of entry. Ouranalysis shows that equilibrium outcomes involve substantial overinvestment in product scope,which benefit consumers and hurt firms, relative to the social optimum. Technological progressgenerally increases consumer surplus and lowers firm profits. If entry is threatened bilaterallyacross two converging markets, both either accommodate entrants from the rival market, or bothdeter entry; continuous progress in technology can cause equilibria shifts, leading to discontinuousand radical redistribution of surplus across markets.
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