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Author: | Sorgard, L. |
Title: | Judo economics reconsidered: capacity limitation, entry and collusion |
Journal: | International Journal of Industrial Organization
1997 : MAY, VOL. 15:3, p. 349-368 |
Index terms: | INDUSTRIAL ORGANIZATION INTERNATIONAL CAPACITY |
Language: | eng |
Abstract: | The capacity investment by a new firm into an established market is explored in a repeated price game. If the entrant expects collusion to prevail upon entry, it may not practice "judo economics" but instead choose to install enough capacity to serve the entire market. This occurs when collusion involves optimal punishment paths. If instead collusion is based upon the static Nash equilibrium punishment, the entrant will strategically limit its capacity so as to restrain the incumbent's price response to entry. |
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