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Raising Rivals' Fixed Costs

Author

Listed:
  • Matt Olczak

    (Centre for Competition Policy, University of East Anglia)

Abstract

This paper analyses the strategic use of fixed costs to deter entry or monopolize a market in a standard Cournot framework. First of all a general case shows how the presence of fixed costs can affect the possible equilibria to the Cournot game. It is shown that the presence of a firm with a first-mover advantage can have important implications if fixed costs are raised. In addition the forward induction process becomes important in determining plausible equilibria. The use of firstly regulation and secondly 'nuisance' law-suits are considered as strategies to increase fixed costs.

Suggested Citation

  • Matt Olczak, 2005. "Raising Rivals' Fixed Costs," Working Papers 05-1, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp05-01
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP05-1.pdf
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    More about this item

    Keywords

    Fixed costs; raising rivals' costs; entry deterrence; monopolization; regulation; nuisance law-suits;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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