The Theory of Market Pre-emption: The Persistence of Excess Capacity and Monopoly in Growing Spatial Markets

Eaton, B. Curtis; Lipsey, Richard G.

doi:10.2307/2553187

Cited by 188 publications

(75 citation statements)

References 7 publications

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“…Speci…cally, the e¤ects are driven by distribution, measured by the number of outlets in a market: of 115:3%, 101:7% comes directly from higher outlet shares ("outlet-share advantage") for …rst entrants, and the remaining 13:6% comes from better sales performance at the store level ("sales-per-outlet advantage") for …rst entrants. The signi…cant outlet-share advantage for …rst entrants is qualitatively consistent with a strand of literature that argues a multistore incumbent may deter late entrants by credibly preempting a product space through product proliferation (e.g., Prescott and Visscher 1977;Schmalensee 1978;Eaton and Lipsey 1979) in geographical space. On the other hand, this paper …nds the observed sales-per-outlet advantage does not exist with a set of controls for the density of own outlets.…”

Section: Introductionsupporting

confidence: 77%

“…A model of sequential-move games predicts that in a subgame perfect equilibrium, the "leader," or the …rst entrant, produces a larger quantity and obtains a higher payo¤ than the followers (Stackelberg 1934). In the context of spatial competition, Prescott and Visscher (1977), Schmalensee (1978), Eaton and Lipsey (1979), and Bonanno (1987) By contrast, another strand of literature predicts the sequential move by players may not allow the incumbents to proliferate outlets. For instance, unless the incumbent's exit costs are not too high, entry deterrence against new entrants through product proliferation may not be credible for incumbents (Judd 1985).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

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First-Mover Advantage Through Distribution: A Decomposition Approach

Nishida

2017

Marketing Science

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Whereas the extant literature on entry-order e¤ects establishes that …rst entrants often earn higher market shares ("market-share advantage"), the literature on distribution suggests increased distribution has a positive e¤ect on sales. Can distribution help us better understand entry-order e¤ects on market shares? This paper examines how the …rst entrant in a geographical market achieves a market-share advantage through distribution. For this purpose, I propose a simple method of decomposing sales into physical distribution and sales performance. The data come from a manually collected panel on six major Japanese convenience-store chains from 47 geographical markets between 1991 and 2007. Using an instrumental variable approach to deal with the potential endogeneity of entry order, I …nd the market-share advantage for the …rst chain brand is positive. Speci…cally, the physical distribution, measured by the number of outlets in a market, drives most of the advantage. This paper further …nds the density of own outlets is nonmonotonically related (inverted U) to sales performance per outlet, suggesting dynamic outlet expansion faces a trade-o¤ between business-stealing e¤ects within a chain ("cannibalization") and advertising e¤ects through repetition.

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Section: Introductionsupporting

confidence: 77%

Section: Theoretical Frameworkmentioning

confidence: 99%

First-Mover Advantage Through Distribution: A Decomposition Approach

Nishida

2017

Marketing Science

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“…Consistent with Dixit's arguments, Eaton and Lipsey (1979) showed that capacity expansion, just at the point in time when entry is profitable, deters entry and is profit maximising for an incumbent firm. Ghemawat's (1984) study provided empirical support for Eaton and Lipsey's suggestion that capacity expansion by incumbent firms deters entry.…”

Section: Pre-emption Based On Credible Commitment To React Aggressivelysupporting

confidence: 56%

An integrative framework of pre‐emption strategies

Lee

2007

Journal of Strategic Marketing

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This paper performs a review of the various pre-emption strategies prescribed in the economics literature. These are cost superiority, consumers' switching cost, channel exclusivity, environmental barriers of entry and credible commitment to react aggressively. Through our analysis, we develop an integrative framework of the pre-emption strategies that will result in long-term payoffs to the firm.The framework proposes that there are two key dimensions -strategic advantage and strategic focus --and identify five generic types of pre-emption strategies for market incumbents.These are the switching cost, blockade, credible commitment, tie-up, and cost leadership strategies. The pre-emption strategies and the framework presented can assist managerial decision-making for the successful pre-emption of potential competition to complement their existing efforts.

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“…Second, as we show below, which firm excludes in this region can have important welfare implications -unlike the standard contestable markets model, from an efficiency perspective it is not a matter of indifference which firm operates and which firm is excluded. 9 Provided that both consumer participation constraints are slack at prices, { } , S S I E P P . As an inspection of Figure 3 readily shows, the equilibrium cannot lie in the conical region when either consumer participation condition binds.…”

Section: Proposition 3 (Exclusion By the Profitable Seller)mentioning

confidence: 99%

Entry, Pricing, and Product Design in an Initially Monopolized Market

Davis

Murphy

Topel

2004

Journal of Political Economy

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We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market segmentation.Firms may also forego socially beneficial product improvements in the post-entry equilibrium, because they intensify price competition too much. Multi-product monopoly can lead to better design incentives than the non-cooperative pricing that prevails under competition.

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The Theory of Market Pre-emption: The Persistence of Excess Capacity and Monopoly in Growing Spatial Markets

Cited by 188 publications

References 7 publications

First-Mover Advantage Through Distribution: A Decomposition Approach

First-Mover Advantage Through Distribution: A Decomposition Approach

An integrative framework of pre‐emption strategies

Entry, Pricing, and Product Design in an Initially Monopolized Market

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