Entry Deterrence and Innovation in Durable-Goods Monopoly∗

نویسندگان

  • Heidrun C. Hoppe
  • Ho Lee
چکیده

This paper investigates the efficiency of innovation investment in durable goods monopoly under a threat of entry. It is well known that the durability causes time inconsistency to the durable goods monopolist, which in turn provides a competitive pressure. When entry threat exists, the durability of the product endows the monopolist with the power to deter entry since the current sales alter the demand condition subsequent to entry. The equilibrium is determined depending on the interaction of the competitive pressure due to time consistency on the one hand and the concern for entry deterrence on the other. Whether the monopolist can deter entry depends on the demand condition for the durable good and the entrant’s innovation cost but not on the incumbent’s innovation cost. This uncoupling of incumbent’s innovation induces inefficiency in innovation investment in that innovation investment is not necessarily made by the firm with the least cost. Moreover entry deterrence followed by no innovation by the incumbent always implies inefficiency in the durable goods industry. Finally the attempt to deter entry can explain leap-frogging of consumers with regard to the consumption of different generation of the durable good.

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تاریخ انتشار 2000