Lecture20_EntryDeterrence_Econ121_Fall2010 (2)

Lecture20_EntryDeterrence_Econ121_Fall2010 (2) - Lecture 20...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style  2/2/11 Lecture 20 Strategic Behavior: Entry Deterrence Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 2/2/11 Overview Capacity as Strategic Instrument Brand Proliferation to Deter Entry
Background image of page 2
 2/2/11 Introduction EasyJet – European success story of the 1990s Operates low-cost, no-frills air service between different European cities Soon after entering the London- Amsterdam segment, KLM, which held 40% of the market, responded by matching easyJet’s low fares.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 2/2/11 Introduction With small number of firms, entrants must take into account retaliation by incumbent firms. Incumbent firms must play an active role to influence the entrant’s decision to enter or not. Entry and exit as an outcome of strategic choices.
Background image of page 4
 2/2/11 Introduction Entry deterrence strategies Capacity expansion, product proliferation, long-term contracts Predation strategies to induce exit Selling below cost
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 2/2/11 DuPont and the Titanium Dioxide Industry TiO2 is a white chemical pigment employed in the manufacture of paint, paper and plastics to make them whiter. Three ways of producing TiO2: sulfate process (old and highly pollutant) and two chloride based processes. DuPont used one type of feedstock and its competitors used
Background image of page 6
 2/2/11 DuPont and the Titanium Dioxide Industry Two major exogenous changes in 1970: Sharp exogenous increase in the price of feedstock used by competitors Significant cost advantage for DuPont From a 22% cost advantage in 1968 to a 44% advantage in 1972 Stricter environmental regulation of sulfate production that meant rivals
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 2/2/11 DuPont and the Titanium Dioxide Industry The increase in raw material costs resulted in the closure of two rival plants and supplies of the TiO2 tightened. DuPont believed that the costs required to meet the new regulations would mean the exit of the sulfate based capacity.
Background image of page 8
 2/2/11 DuPont and the Titanium Dioxide Industry DuPont Competitive advantages: Cheaper input Production process complied better with new environmental standards Hence, better financial shape that enabled it to invest in expanding capacity Created task force to study how to turn these advantages to the firm’s greater benefit
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 2/2/11 DuPont Result: expand capacity at a pace sufficient to satisfy all of the growth in demand in the ensuing years The idea was that by expanding rapidly, DuPont would discourage expansion (or entry) by rival firms. Plan: increase market share from
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 37

Lecture20_EntryDeterrence_Econ121_Fall2010 (2) - Lecture 20...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online