Project Management

Entry Accomodation Under Multiple Commitment Stategoes : Judo Economics Revisited

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Executive Summary

The authors 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. They 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.

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