Aggressive leaders

Abstract

I characterize the incentives to undertake strategic investments in markets with Nash competition and endogenous entry. Contrary to the case with an exogenous number of firms, when the investment increases marginal profitability, only a "top dog" strategy is optimal. For instance, under both quantity and price competition, a market leader overinvests in cost reductions and overproduces complement products. The purpose of the strategic investment is to allow the firm to be more aggressive in the market and to reduce its price below those of other firms. Contrary to the post-Chicago approach, this shows that aggressive pricing strategies are not necessarily associated with exclusionary purposes.

Choosing a licensee from heterogeneous rivals

“…It is interesting to note that the licensor earns higher pro…t in the restricted case 2. This is because both W N ( ) and W fkg ( ) are modi…ed by the restrictions, and the binding constraint changes from (5) to (7). This observation con…rms that allowing di¤erent classes of licensing contracts complicates the results further.…”

“…See, e.g., Etro (2006). output and joint pro…t of the licensor and licensees, and q(n) and (n) be the output and pro…t of each non-licensee.…”

“…That is, competition among potential licensees over the technology transfer should be more pro…table in the presence of externalities. Katz and Shapiro (1986), and others since, 7 have taken this into account when they examine an auction game in a homogeneous licensee environment by endogenizing the number of licenses. We follow their approach, but do so in a setting with heterogeneous …rms, and ask which …rm would win the right to use the technology and how much the licensor would collect from licensing.…”

“…In this case, the joint-pro…t-maximizing licensee should be selected by the licensor as the recipient of the technology. 7 For a review of auctions in licensing, see Giebe and Wolfstetter (2007 (Claburn, 2011). 9 Truthful Nash equilibria in a simple auction and in a menu auction appear to be similar in their de…nitions, but their implications are somewhat di¤erent.…”

Competition policy and market leaders

“…However, it seems that there was no underlying economic analysis on the side of EC that would support the above claims. Therefore, we reconsider this EC decision by relying on relevant economic analysis of market leaders in Section 2 (see Etro, 2006 and2007) and also by relying on an equilibrium refinement in the repeated games that focuses on outcomes Preferred by Efficient Players (see Boone, 2002) in Section 3. Finally, in Section 4 we make a brief summary of our findings.…”