Investment in Green Technology and Entry Deterrence

John C. Strandholm 1  and Ana Espínola-Arredondo 2
  • 1 Johnson College of Business and Economics, University of South Carolina Upstate, 160 East St John St, Spartanburg, USA
  • 2 School of Economic Sciences, Washington State University, 111C Hulbert Hall, Pullman, USA
John C. Strandholm
  • Johnson College of Business and Economics, University of South Carolina Upstate, 160 East St John St, Spartanburg, SC 29306, USA
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and Ana Espínola-Arredondo
  • Corresponding author
  • School of Economic Sciences, Washington State University, 111C Hulbert Hall, Pullman, WA 99164, USA
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Abstract

This paper analyzes an entry-deterrence model in which the incumbent decides whether to invest in research and development (R&D) that promotes clean technology. We consider the case in which the entrant could benefit from a technology spillover and analyze the conditions that facilitate the incumbent’s entry-deterrence behavior. We show that higher levels of the spillover make entry more attractive compared to a standard entry game. In addition, regulator and incumbent prefer entry when the spillover from clean technology is sufficiently high and the cost of investing in R&D is relatively low. However, preferences are misaligned when the spillover and cost of R&D are low.

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