ECON 305 Lecture Notes - Lecture 16: Sunk Costs, Prokaryotic Small Ribosomal Subunit
16 Jan 2015
School
Department
Course
Professor
Document Summary
If limit pricing deters a potential entrant (pe), then limit pricing is a profitable strategy ( l exceeds the profits from all other) strategies. If the pe were to enter, then holding output constant ( fighting ) would lead to negative profits ( f < 0) for both incumbent and pe. There is also the issue of whether this is a single play or a repeated game, and whether the incumbent wishes to signal other potential entrants. In the face of the demonstration that sharing produced higher payoffs profits than did. Fighting , spence suggested that the incumbent could produce a more credible commitment by holding excess capacity. It assumes the incumbent holds excess capacity, producing at qm and setting price at. While empirical studies do not show that investing in (or strategically holding) excess capacity is widespread, there is some evidence that incumbents do increase output in the face of threatened entry (lieberman)
