Firms` Strategic Decisions: Theoretical and Empirical Findings

Firms` Strategic Decisions: Theoretical and Empirical Findings

Volume: 2

Indexed in: Book Citation Index, Social Sciences & Humanities, EBSCO.

This is the second volume of the book series featuring empirical research conducted on business decision making policies of oligopolistic organizations. This volume brings together 11 chapters that ...
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Price-Setting Games and Entry Deterrence

Pp. 142-161 (20)

Kazuhiro Ohnishi

Abstract

This chapter considers a two-stage price-setting model of an established firm and a potential entrant and investigates whether the use of strategic commitments by the established firm is effective to deter entry. Most studies on entry deterrence examine the situation of strategic complements where goods are substitutes in Bertrand competition. Therefore, the chapter divides demand functions into four cases, and correlates each case with either of two opposite strategic commitments. This chapter examines the entry-deterring equilibrium outcomes resulting from the strategic commitments of the established firm in all four cases and shows that strategic commitments can be used as an effective tool for entry deterrence in Bertrand competition.

Keywords:

Complementary goods, donation, entry deterrence, entry-deterring equilibrium, established firm, lifetime employment, potential entrant, price-setting model, strategic complements, strategic substitutes, substitute goods, two-stage game.

Affiliation:

Institute for Basic Economic Science, 2-15-12 Hanjo, Minoo, Osaka 562-0044, Japan.