Entry Deterrence in a Cournot Model

Abstract

This chapter examines a two-stage quantity-competition model with an established firm and a potential entrant. Demand functions are divided into the following four cases: ‘substitute goods and strategic complements’, ‘substitute goods and strategic substitutes’, ‘complementary goods and strategic substitutes’ and ‘complementary goods and strategic complements’. All these cases are correlated with two opposite strategic devices. This chapter discusses the entry-deterring behaviours resulting from strategic commitments by the established firm in all four cases.

Keywords: Complementary goods, countermeasure, entry deterrence, lifetime employment contract, monopolist, potential entrant, quantity-setting model, stability condition, strategic complements, strategic substitutes, substitute goods, wage-rise contract.