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Chapter 14

Chapter 14. Strategy. Table 14.01 Simultaneous Entry Game. Figure 14.01 Whether an Incumbent Pays to Prevent Entry. First stage. Second stage. p. , . p. ). (. i. e. Do not enter. (. p. , $0). m. Do not pay. Entrant. Enter. (. p. , . p. = . R. –. F. ). d. d.

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Chapter 14

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  1. Chapter 14 Strategy

  2. Table 14.01 Simultaneous Entry Game

  3. Figure 14.01 Whether an Incumbent Pays to Prevent Entry First stage Second stage p , p ) ( i e Do not enter ( p , $0) m Do not pay Entrant Enter ( p , p = R – F ) d d Incumbent Pay for exclusive rights (entry is impossible) ( – b , $0) p m

  4. Figure 14.02 Noncredible Threat ( p , p ) i e Cournot output ($300, $300) Incumbent Large output ( – $100, – $100)

  5. Figure 14.03 Game Trees for the Deterred Entry and Stackelberg Equilibria (a) Entrant s Fixed Cost Is $100. ’ ( p , p ) i e Do not enter ($900, $0) q = 30) Accommodate ( i Entrant Enter ($450, $125) Incumbent Do not enter ($800, $0) q Deter ( = 40) i Entrant Enter ($400, $0) (b) Entrant ’ s Fixed Cost Is $16. Do not enter ($900, $0) Accommodate ( q = 30) i Entrant Enter ($450, $209) Incumbent Do not enter ($416, $0) Deter ( q = 52) i Entrant Enter ($208, $0)

  6. Table 14.02 Entrant’s Best Response and Profit

  7. Figure 14.04 Cournot and Stackelberg Equilibria (a) Best-Response Curves q , Units e per period 60 Incumbent ’ s best-response curve 30 e c 20 e s 15 Entrant ’ s best-response curve 0 20 30 60 q , Units per period i (b) Incumbent ’ s Profit p , $ per period i 450 400 p i 0 20 30 60 q , Units per period i

  8. Figure 14.05 Incumbent Commits to a Large Quantity to Deter Entry (a) Entrant ’ s Best-Response Curve q , Units per period e 30 Entrant ’ s best-response curve e s 15 e d 10 0 30 40 60 q , Units per period (b) Incumbent s Profit ’ , Incumbent π ’ s i Profit per period, $ 900 800 p m p i 450 p s 0 30 40 60 q , Units per period

  9. Figure 14.06 Incumbent Loss If It Deters Entry (a) Entrant ’ s Best-Response Curve q , Units per period e 30 Entrant ’ s best-response curve e s 15 0 30 52 60 q , Units per period i (b) Incumbent ’ s Profit p , $ per period i 900 p m 450 416 p i p s 0 30 52 60 q , Units per period i

  10. Figure 14.07 Investment Game Tree ( p , p ) i e Do not enter ($900, $0) Do not invest Entrant Enter ($400, $300) Incumbent Do not enter ($500, $0) Invest Entrant Enter – ($132, $36)

  11. Figure 14.08 Raising-Costs Game Tree ( p , p ) i e Do not enter ($10, $0) Do not raise costs Entrant Enter ($3, $3) Incumbent Do not enter ($6, $0) Raise costs $4 Entrant Enter ( $1, – $1) –

  12. Application Evidence on Strategic Entry Deterrence

  13. Figure 14.09 Advertising Price of Coke, p , $ per unit c 19 17 e 2 p = 12 B 2 p = 11 e 1 1 p 1 MC = AC 5 2 1 D D 2 1 MR MR 0 Q = 24 Q = 28 68 76 1 2 Q , Units of Coke per year c

  14. Figure 14.10 Shifts in the Marginal Benefit of Advertising Marginal benefit, marginal cost, $ per unit 2 1 MB MB MC A A 2 1 Minutes of advertising time purchased per day

  15. Table 14.03 Advertising Game

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