Coexistence of small and dominant firms in Bertrand competition

Judo economics in the lab

Autor/innen

  • Daniel Cracau
  • Abdolkarim Sadrieh

DOI:

https://doi.org/10.24352/UB.OVGU-2018-503

Schlagworte:

Judo economics, Market entry, Price competition, Capacity limitation, Experimental economics

Abstract

The theory of "Judo Economics" describes an optimal entry strategy for small firms. Using a capacity limitation, small firms force dominant market incumbents to accommodate. In this article, we study the power of Judo economics as an entry strategy in different market environments. We find experimental evidence supporting the theory in the original setting with a monopolistic, dominant market incumbent. When we introduce a cost advantage for small firms, profits go down. This can be explained by incumbents responding aggressive towards large entrants. For settings with multiple market incumbents, results are reversed. There, a cost advantage strengthens small firms and pricing below the incumbents' marginal cost provides the unique entry strategy.

Veröffentlicht

2018-09-18

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