ECON 305 Lecture Notes - Lecture 15: Joe S. Bain, Strategic Dominance, Ex-Ante
16 Jan 2015
School
Department
Course
Professor
Document Summary
In the 1950s joe bain introduced the concept of a limit price defined as: The highest price an incumbent firm could set without incurring entry, Or equally the highest price that could be set while deterring entry. Two entry-deterring strategies: bain sylos limit pricing and spense" excess capacity model. A firm sets output at qi and price at p*, so that the entrant residual demand curve is below the ac curve. The incumbent will not change its quantity hence whichever output the entrant chooses, the price will fall below costs for the entrant. For the incumbent however, since it produces more, the cost of producing qi will be below price. The solid price and output lines indicate the limit price, po and output, qo. If output and price are held at po and qo then the entrants ac curve c c " lies to the right of the residual demand curve, ad. (equally, pod" is to left of.
