Entry accommodation under multiple commitment strategies: judo economics revisited

We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accommodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.

[1]  I. Glicksberg.  A FURTHER GENERALIZATION OF THE KAKUTANI FIXED POINT THEOREM, WITH APPLICATION TO NASH EQUILIBRIUM POINTS , 1952 .

[2]  M. Shubik,et al.  Price duopoly and capacity constraints , 1972 .

[3]  S. Rosen,et al.  Monopoly and product quality , 1978 .

[4]  Jacques-François Thisse,et al.  Price competition, quality and income disparities , 1979 .

[5]  A. Shaked,et al.  Relaxing price competition through product differentiation , 1982 .

[6]  David M. Kreps,et al.  Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes , 1983 .

[7]  David M. Kreps,et al.  Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes , 1983 .

[8]  S. Salop,et al.  Judo Economics: Capacity Limitation and Coupon Competition , 1983 .

[9]  D. Fudenberg,et al.  The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look , 1984 .

[10]  E. Maskin,et al.  The Existence of Equilibrium in Discontinuous Economic Games, II: Applications , 1986 .

[11]  Chong Ju Choi,et al.  A Comment on a Model of Vertical Product Differentiation , 1992 .

[12]  J. Dupuit.  De la mesure de l'utilit des travaux publics (1844) , 1995 .

[13]  Jacques-François Thisse,et al.  Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right , 1996 .

[14]  Christian Gourieroux,et al.  Simulation-based econometric methods , 1996 .

[15]  J. Huriot,et al.  Economics of Cities , 2000 .

[16]  James Renegar,et al.  A mathematical view of interior-point methods in convex optimization , 2001, MPS-SIAM series on optimization.

[17]  Paul Belleflamme,et al.  Oligopolistic competition, IT use for product differentiation, and the productivity paradox , 2001 .

[18]  Daniel Bienstock,et al.  Potential Function Methods for Approximately Solving Linear Programming Problems: Theory and Practice , 2002 .

[19]  Ping Lin,et al.  Product differentiation, process R&D, and the nature of market competition , 2002 .

[20]  Stephanie Rosenkranz,et al.  Simultaneous choice of process and product innovation when consumers have a preference for product variety , 2003 .

[21]  D. Peeters,et al.  Residential equilibrium in a multifractal metropolitan area , 2010 .

[22]  Laurence A. Wolsey,et al.  Integration of AI and OR Techniques in Constraint Programming for Combinatorial Optimization Problems, 4th International Conference, CPAIOR 2007, Brussels, Belgium, May 23-26, 2007, Proceedings , 2007, CPAIOR.

[23]  W. Pohlmeier,et al.  High frequency financial econometrics : recent developments , 2007 .

[24]  Jacques-François Thisse,et al.  Economic Geography: The Integration of Regions and Nations , 2008 .

[25]  Erik Schokkaert,et al.  What good is happiness , 2009 .

[26]  Erik Schokkaert,et al.  What good is happiness , 2009 .

[27]  Xavier Wauthy,et al.  On the nature of price competition under universal service obligations: a note , 2009 .

[28]  J. Rombouts,et al.  Nonparametric Copula-Based Test for Conditional Independence with Applications to Granger Causality , 2012 .

[29]  M. Sanin,et al.  Understanding volatility dynamics in the EU-ETS market , 2009 .

[30]  Andrea Silvestrini,et al.  What do we know about comparing aggregate and disaggregate forecasts , 2009 .

[31]  Henry Tulkens,et al.  Dynamic Core-Theoretic Cooperation in a Two-Dimensional International Environmental Model , 2009 .

[32]  Michel Lubrano,et al.  The tradeoff between growth and redistribution: ELIE in an overlapping generations model , 2009 .

[33]  S. Zanaj,et al.  Clean technology adoption and its influence on tradeable emission permit prices. , 2009 .

[34]  Laurence A. Wolsey,et al.  Reformulation and Decomposition of Integer Programs , 2009, 50 Years of Integer Programming.

[35]  Laurence A. Wolsey,et al.  Constrained Infinite Group Relaxations of MIPs , 2010, SIAM J. Optim..

[36]  S. Zanaj,et al.  On uncertainty when it affects successive markets , 2010 .

[37]  Thierry Bréchet,et al.  CAN EDUCATION BE GOOD FOR BOTH GROWTH AND THE ENVIRONMENT? , 2009, Macroeconomic Dynamics.

[38]  Thierry Bréchet,et al.  CAN EDUCATION BE GOOD FOR BOTH GROWTH AND THE ENVIRONMENT? , 2009, Macroeconomic Dynamics.

[39]  Lars Stentoft,et al.  Série Scientifique Scientific Series 2009 s19 Bayesian Option Pricing Using Mixed Normal Heteroskedasticity Models , 2009 .