NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Entry, Pricing and Product Design in an Initially Monopolized Market

Steven J. Davis, Kevin M. Murphy, Robert H. Topel

NBER Working Paper No. 8547
Issued in October 2001
NBER Program(s):Industrial Organization

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.

download in pdf format
   (382 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8547

Published: Davis, Stephen J., Kevin M. Murphy and Robert H. Topel. "Entry, Pricing, And Product Design In An Initially Monopolized Market," Journal of Political Economy, 2004, v112(2,Part2), S188-S225. citation courtesy of

Users who downloaded this paper also downloaded* these:
Davis, MacCrisken, and Murphy w8411 Economic Perspectives on Software Design: PC Operating Systems and Platforms
Davis, Murphy, and Topel w12092 War in Iraq versus Containment
Pojarliev and Levich w14355 Trades of the Living Dead: Style Differences, Style Persistence and Performance of Currency Fund Managers
Becker, Murphy, and Grossman w10976 The Economic Theory of Illegal Goods: The Case of Drugs
Philipson, Becker, Goldman, and Murphy w15649 Terminal Care and The Value of Life Near Its End
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us