TY  - JOUR
AU  - Davis,Steven J.
AU  - Murphy,Kevin M.
AU  - Topel,Robert H.
TI  - Entry, Pricing and Product Design in an Initially Monopolized Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8547
PY  - 2001
Y2  - October 2001
UR  - http://www.nber.org/papers/w8547
L1  - http://www.nber.org/papers/w8547.pdf
N1  - Author contact info:
Steven J. Davis
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7312
Fax: 773/834-0733
E-Mail: Steven.Davis@ChicagoBooth.edu

Kevin M. Murphy
Booth School of Business
The University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7280
Fax: 773/834-3554
E-Mail: murphy@chicagoBooth.edu

Robert H. Topel
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/702-7524
Fax: 773/702-2699;708/798-5080 (home)
E-Mail: robert.topel@ChicagoBooth.edu
AB  - 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.
ER  -