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For instance, it may falsely signal to pharmaceutical companies that the markets for improved pediatric ARVs are smaller than anticipated because of logistical and acceptability problems, deterring entry of new manufacturers and scale-up of production among existing ones [ 28].
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Or, to put it differently, for given F firm 1 needs to overinvest more to deter entry of firm 2. Therefore, it starts doing this for larger values of F and needs to keep on doing it for larger values of F than in the Markov perfect equilibrium.
Incumbent's capital stock level needed to deter entry is a hump shaped function of the entry time.
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.
Thus, the strategy of holding excess capacity to deter entry and maintain market power may have implicitly played a crucial role in determining the scale of fleet capacity for a container shipping line.
We establish that for low entry cost entry accommodation will result, for intermediate levels of the entry cost the incumbent will deter entry, and higher entry cost levels imply that the incumbent is a natural monopoly.
This implies that both steady state capital stocks are optimal, i.e. that of the duopoly and KcritMP (the minimal level needed to deter entry).
Our estimates reflect a system that was not designed to deter entry into SSDI or SSI.
First, the firm can deter entry.
Firm 1 knows this and could adjust its strategy, i.e. overinvest, to deter entry.
For F > F I MP it is profitable for firm 1 to deter entry.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com