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- Title
Economies of Scope, Entry Deterrence and Welfare.
- Authors
Pires, Cesaltina Pacheco; Catalão-Lopes, Margarida
- Abstract
This paper develops a model where the incumbent may expand to a related market to signal economies of scope and deter entry in the former market. We show that the incumbent only expands when scope economies are large enough. Thus expansion is a signal of larger economies of scope and, for certain parameter values, leads to entry deterrence. Although our game is two-period, the expansion strategy creates a long-term advantage. We further investigate the implications of prohibiting an entry-deterrent expansion. A major finding is that, in our model, this prohibition always decreases consumer surplus. In terms of global welfare, the impact is ambiguous but negative for many parameter values.
- Subjects
CONSUMERS' surplus; CAPITALISM; INCUMBENCY (Public officers); MARKET entry
- Publication
B.E. Journal of Economic Analysis & Policy, 2013, Vol 13, Issue 1, p419
- ISSN
2194-6108
- Publication type
Article
- DOI
10.1515/bejeap-2012-0078