Capacity Competition in Differentiated Oligopolies: Entry Deterrence with Alternative Objective Functions

• DOI: 10.2478/jeb-2021-0007
• Publication Date: 2021-07-12T22:50:02Z
• Authors: Bojan Ristić; Dejan Trifunović; Tomislav Herceg
• Keywords: Product Differentiation; Deterrence theory

Abstract This paper aims to identify the possible implications of quantity competition in markets with differentiated products on entry deterrence. If capacity commitments characterise this industry, quantities can be expected as choice variable rational players, even presence product differentiation. Different equilibria a static game occur depending degree asymmetry incumbent and entrant, which will crucially affect shape their best response functions. Asymmetry stem from players’ advantage demand costs, different objective functions, or first-mover advantage. We analyse where maximises weighted average profit revenue while entrant is maximising profit. The reduction may intensify industry and, consequently, reduce barriers. Our findings provide an insight that could used for practical recommendations conducting policy other sector-specific regulations, introduction higher intensity are desirable.