Debt as an Entry Deterrent under Bertrand Price Competition

The commitment value of the debt: A reappraisal

“…They consider a two-stage Cournot game with homogeneous product where debt choice occurs at the pre competitive stage and production decision at the competitive one. They show that issuing risky debt induces firms to behave more aggressively towards competitors and may Brander and Lewis (1988), Maksimovic (1988Maksimovic ( , 1990, Poitevin (1989), Glazer (1994), Showalter (1995Showalter ( , 1999, Hughes, Kao and Mukherji (1998), Wanzenried (2003).…”

Exclusion through speculation

“…McAndrews and Nakamura (1992) investigate entry deterrence in a Cournot model and show that when demand is uncertain, an incumbent can use debt to discourage entry without deviating from the all-equity monopoly output. Showalter (1999) shows that in an industry with uncertain costs and Bertrand competition, an incumbent can occasionally deter entry by using debt to commit to a sufficiently low price. Cestone and White (2003) show that, if credit markets are imperfectly competitive, commitment problems on the part of the investor lead to the choice of equity as the way to fund an incumbent so as to prevent rivals from accessing credit.…”

Entorno competitivo, endeudamiento y especificidad de los activos: Evidencia en el caso de las empresas españolas

“…Por ejemplo, Showalter (1999) asume un entorno competitivo a la Bertrand, identificado éste porque las empresas actúan como complementos estratégicos, y muestra que un monopolista puede disuadir la entrada de un competidor al mercado a través de la deuda si es que existe incertidumbre en los costos unitarios de la empresa establecida. Sin embargo, esta disuasión, a través de la deuda, no tiene cabida si lo que se presenta es incertidumbre en la demanda en lugar de incertidumbre en costos.…”