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Exit Deterrence

Author

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  • Martin C. Byford
  • Joshua S. Gans

Abstract

This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the unilateral accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits.

Suggested Citation

  • Martin C. Byford & Joshua S. Gans, 2014. "Exit Deterrence," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 650-668, September.
    • Handle: RePEc:bla:jemstr:v:23:y:2014:i:3:p:650-668
    DOI: 10.1111/jems.12063
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    References listed on IDEAS

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    Cited by:

    1. Martin C. Byford & Joshua S. Gans, 2014. "Permission to Exist," NBER Working Papers 20512, National Bureau of Economic Research, Inc.
    2. Byford, Martin C. & Gans, Joshua S., 2019. "Strengthening a weak rival for a fight," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 1-17.

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