TY - JOUR
T1 - Capital as a commitment
T2 - Strategic investment to deter mobility
AU - Fudenberg, Drew
AU - Tirole, Jean
PY - 1983/1/1
Y1 - 1983/1/1
N2 - This paper analyzes how an early entrant in a market can exploit its head start by strategic investment. The analysis is based on Spence's paper, Investment strategy and growth in a new market, (Bell J. Econ., 10 (1979), 1-19). We frist study the investment game in the no-discounting case, which embodies the key features of mobility deterrence. We establish the existence of a set of perfect equilibria and suggest that one particular equilibrium is most reasonable. This equilibrium, also valid with discounting, involves the follower firm being forever deterred from investing to its steady-state reaction curve, in contrast to Spence's proposed solution.
AB - This paper analyzes how an early entrant in a market can exploit its head start by strategic investment. The analysis is based on Spence's paper, Investment strategy and growth in a new market, (Bell J. Econ., 10 (1979), 1-19). We frist study the investment game in the no-discounting case, which embodies the key features of mobility deterrence. We establish the existence of a set of perfect equilibria and suggest that one particular equilibrium is most reasonable. This equilibrium, also valid with discounting, involves the follower firm being forever deterred from investing to its steady-state reaction curve, in contrast to Spence's proposed solution.
UR - http://www.scopus.com/inward/record.url?scp=0000788730&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0000788730&partnerID=8YFLogxK
U2 - 10.1016/0022-0531(83)90075-3
DO - 10.1016/0022-0531(83)90075-3
M3 - Article
AN - SCOPUS:0000788730
SN - 0022-0531
VL - 31
SP - 227
EP - 250
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 2
ER -