Optimal firm growth under the threat of entry

Peter Kort, S. Wrzaczek

Research output: Contribution to journalArticleScientificpeer-review

5 Citations (Scopus)

Abstract

The paper studies the incumbent-entrant problem in a fully dynamic setting. We find that under an open-loop information structure the incumbent anticipates entry by overinvesting, whereas in the Markov perfect equilibrium the incumbent slightly underinvests in the period before the entry. The entry cost level where entry accommodation passes into entry deterrence is lower in the Markov perfect equilibrium. Further we find that the incumbent’s capital stock level needed to deter entry is hump shaped as a function of the entry time, whereas the corresponding entry cost, where the entrant is indifferent between entry and non-entry, is U-shaped.
Original languageEnglish
Pages (from-to)281-292
Number of pages11
JournalEuropean Journal of Operational Research
Volume246
Issue number1
DOIs
Publication statusPublished - 1 Oct 2015

Keywords

  • Economics
  • Game theory
  • Dynamic programming

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