Exit Deterrence

29 Pages Posted: 1 Dec 2008 Last revised: 19 Sep 2012

See all articles by Martin C. Byford

Martin C. Byford

RMIT University - School of Economics, Finance and Marketing

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: September 19, 2012

Abstract

This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the unilateral accommodating behaviour of the efficient incumbent. Similarly, such accommodating behaviour may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefi ts.

Keywords: Entry, Access Rights, Dynamic Oligopoly, Relational Contracts, Unilateral Conduct

JEL Classification: L13

Suggested Citation

Byford, Martin C. and Gans, Joshua S., Exit Deterrence (September 19, 2012). Available at SSRN: https://ssrn.com/abstract=1309366 or http://dx.doi.org/10.2139/ssrn.1309366

Martin C. Byford

RMIT University - School of Economics, Finance and Marketing ( email )

440 Elizabeth Street
Melbourne, Victoria 3000
Australia

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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