Optimal firm growth under the threat of entry

Peter Kort; Stefan Wrzaczek

doi:10.1016/j.ejor.2015.04.030

Optimal firm growth under the threat of entry

Peter Kort, Stefan Wrzaczek

Institut für Rechnungswesen, Innovation und Strategie

Veröffentlichungen: Beitrag in Fachzeitschrift › Artikel › Peer Reviewed

Abstract

Thepaperstudiestheincumbent-entrantprobleminafullydynamicsetting.Wefindthatunderanopen-loopinformationstructuretheincumbentanticipatesentrybyoverinvesting,whereasintheMarkovperfectequilibriumtheincumbentslightlyunderinvestsintheperiodbeforetheentry.TheentrycostlevelwhereentryaccommodationpassesintoentrydeterrenceislowerintheMarkovperfectequilibrium.Furtherwefindthattheincumbent’scapitalstocklevelneededtodeterentryishumpshapedasafunctionoftheentrytime,whereasthecorrespondingentrycost,wheretheentrantisindifferentbetweenentryandnon-entry,isU-shaped.

Originalsprache	Englisch
Seiten (von - bis)	281-292
Seitenumfang	12
Fachzeitschrift	European Journal of Operational Research
Jahrgang	246
Ausgabenummer	1
DOIs	https://doi.org/10.1016/j.ejor.2015.04.030
Publikationsstatus	Veröffentlicht - 1 Okt. 2015

ÖFOS 2012

101015 Operations Research

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10.1016/j.ejor.2015.04.030

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title = "Optimal firm growth under the threat of entry",

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.",

keywords = "CAPACITY INVESTMENT, COMMITMENT, Dynamic programming, Economics, Game theory",

author = "Peter Kort and Stefan Wrzaczek",

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year = "2015",

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AU - Wrzaczek, Stefan

N1 - Publisher Copyright: © 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.

PY - 2015/10/1

Y1 - 2015/10/1

N2 - 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.

AB - 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.

KW - CAPACITY INVESTMENT

KW - COMMITMENT

KW - Dynamic programming

KW - Economics

KW - Game theory

UR - https://www.scopus.com/pages/publications/84930081450

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DO - 10.1016/j.ejor.2015.04.030

M3 - Article

SN - 0377-2217

VL - 246

SP - 281

EP - 292

JO - European Journal of Operational Research

JF - European Journal of Operational Research

IS - 1

ER -

Optimal firm growth under the threat of entry

Abstract

ÖFOS 2012

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