Advertising And Entry Deterrence An Exploratory Model

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Advertising And Entry Deterrence An Exploratory Model
Richard Schmalensee
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(Since buyers never forget, decreases in X or y are not possible, just as decreases in production capacity are usually ruled out in the corresponding literature. ) Under some conditions, destruction of the materials necessary to print more leaflets may serve to accomplish this. In the second case, X cannot make such commitments and is restricted to credible x's, defined as those values of X such that X will not wish to increase advertising if Y enters on its reaction function. Formally, x^ is c...redible if and only if (15) x*[y*(xo)] ^ T^. If X selects a credible x, Y's best response if it enters is y*(x), and the game is over. If X cannot commit in advance not to increase x and it selects an x that is not credible, the situation becomes quite complex. Both X and Y must analyze possible sequences of increases in x and y over time. Limiting X to credible advertising levels avoids the necessity of solving such dynamic games, but it may over-state the effects of X's inability to commit not to increase advertising after Y's entry.

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