Entry, Pricing and Product Design in an Initially Monopolized Market / Steven J. Davis, Kevin M. Murphy, Robert H. Topel.

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Davis, Steven J

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w8547.Publication details: Cambridge, Mass. National Bureau of Economic Research 2001.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market segmentation. Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w8547 (Browse shelf(Opens below))	Not For Loan

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October 2001.

We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market segmentation. Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.