Microeconomics · free preview
Deterrence and Entry
Incumbents deter with capacity, reputation and price itself, but every device must survive the credibility test, and the antitrust line polices predatory schemes that fail it.
1. Buying a bigger tree
Buying a bigger tree
2. Pricing to deter
Pricing to deter
3. Predation's question
Predation's question
4. The strategist's summary
The strategist's summary
5. Capacity as commitment
Why does an incumbent's prebuilt idle capacity deter entry more credibly than a verbal threat to flood the market?
6. The predation test
Why do antitrust courts require evidence of below-cost pricing and a plausible recoupment path before finding predation?
7. Deterrence's price
An incumbent earns 80 a year as an undisturbed monopolist. Idle capacity costs 20 a year to maintain and deters entry completely, preserving the 80. Without the capacity, entry occurs and profits fall to 30 a year. Compute the annual payoff from maintaining deterrence, and write the number.
8. Capacity that talks
Why does an incumbent's prebuilt idle capacity deter entry more credibly than a verbal threat?
9. The recoupment requirement
Why do antitrust courts require evidence of below-cost pricing and a plausible recoupment path before condemning predatory pricing?
10. Deterrence's arithmetic
An incumbent earns 80 a year as an undisturbed monopolist, and idle deterrent capacity costs 20 a year. If entry would cut its yearly earnings to 30, compute the annual profit if deterrence succeeds, and write the number.
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