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Entry deterrence: The case of a buyer with market power

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Abstract

The model considers a seller operating under the threat of an arbitrarily large number of unknown potential entrants and facing a strategic buyer. It is shown that the seller's Nash best response function slopes downward in price-output space, while that of the buyer slopes upward. The Nash equilibrium may be associated with a lower probability of entry than the equilibrium at which the buyer behaves non-strategically. With the buyer as the Stackelberg leader, the price is shown to decrease relative to that at the Nash equilibrium, but the probability of entry may rise or fall.

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Authors and Affiliations

  1. Lehigh University, USA

    Ram Mudambi (Assistant Professor of Economics)

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  1. Ram Mudambi
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Mudambi, R. Entry deterrence: The case of a buyer with market power. Rev Ind Organ 5, 111–138 (1990). https://doi.org/10.1007/BF02284678

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  • DOI: https://doi.org/10.1007/BF02284678

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