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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Volume 12, Issue 1 (Mar 2012)

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Technology Inertia and the Benefits of Entry

Emanuele Bacchiega / Paolo G. Garella
Published Online: 2012-03-16 | DOI: https://doi.org/10.1515/1935-1682.3133

Abstract

We study the effects of entry on price in an industry. This assessment is usually carried out under the implicit assumption of “technological inertia”: incumbents cannot change their technologies in response to entry. We remove this assumption by modeling a game where, before quantity competition, firms choose technologies. We identify parameter configurations where, after entry, the incumbent(s) changes technology. This leads either to a higher price after entry or to a “dampening effect” on price reduction. This effect is shown to be relevant when evaluating the welfare gains from measures intended to foster competition by increasing the number of competitors. The converse proposition could be stated for evaluating the social costs of mergers.

Keywords: technology; oligopoly; entry; mergers; competition policy

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Published Online: 2012-03-16


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, DOI: https://doi.org/10.1515/1935-1682.3133.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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