Strategic Investment and Market Integration

Strategic Investment and Market Integration

Mattias Ganslandt*

June 27, 2001

Abstract

The competitive effect of international market integration in industries with imperfect com-
petition is of great policy interest. This paper focuses on the link between monopolization and
market segmentation. It presents a model of multi-market entry deterrence with or without
market commitments. We derive sufficient conditions for entry deterrence with productive ca-
pacity in the multi-market game. It is shown that to deter entry in the multi-market game, the
first-mover installs productions capacity which is strictly larger than the capacity needed to de-
ter entry, if it is possible to assign parts of the capacity to specific markets. Market integration
for production capacity may, thus, have a pro-competitive effect in international markets.

JEL codes: F12, F15, L12

Keywords: entry deterrence, multi-market competition, market integration

*IUI (The Research Institute of Industrial Economics), P.O. Box 5501, SE-11485 Stockholm, Sweden, e-mail
mattias.ganslandt©iui.se, phone +46-8-6654524, fax +46-8-6654599. The author is grateful to Hans Carlsson, Ig
Horstmann, Jim Markusen for valuable comments. Financial support from Marianne and Marcus Wallenberg Foun-
dation as well as the hospitality of the economics department at University of Colorado at Boulder (where Ganslandt
visited when this research was conducted) is gratefully acknowledged.

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