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Unpublished Paper
Exit Deterrence
(2009)
  • Martin Byford, University of Colorado
  • Joshua S Gans
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 accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits.

Keywords
  • exit,
  • potential entry,
  • Markov perfect equilibrium
Disciplines
Publication Date
June 30, 2009
Citation Information
Martin Byford and Joshua S Gans. "Exit Deterrence" (2009)
Available at: http://works.bepress.com/joshuagans/27/