Strategic Investment and Market Integration



Appendix A. Sequential Entry

Proof. Step 1. Start in period n. Let the remaining capacity be kn = kn-1 x^- There are
two subgames; either player
n enters or stays out of market n. In the subgame with entry, the
unique Nash equilibrium is
{xt^ (kn), -r^}, where xt^ (kn) = min {kn,x} and "xrn = βe (xtβ (kn)).
If player n decides to stay out of market n, we have the following limit Nash equilibrium [x™', θ},
where
^ym (x, θ) = 0. The unique Nash equilibrium in the subgame with no entry is {x)(λ (k), 0},
where
x(kn) = min {kn,x}. From S, it follows that xx.

Step 2. Player n would enter if kn x and stay out as long as kn x. To deter entry, player m
would need kn x. Now, assume that enough unused capacity remains to deter entry. Rewrite the
equilibrium output of player m in period n as a function of k
n-ι and x%-ι, i.e. x (kn-ι, x%-ι ) =
min {kn-i xrβ-1m}.

Step 3. Working backwards to period n 1, we have two subgames; either player n 1 enters or
stays out of market n
1. First, capacity kn-ι would ensure a successful commitment by player
m in market n
1 to an output xi, if and only if:

°v                   °x™   °V

-----(T11 (T1)) + —ɪ -— (x(k,T1), 0) 0             (13)
я„,™   
n-1,    ∖ n- 1)) а^т Ягг-тn V , n-1 ) , ) —                    V >

°xn-1                     °xn-1 °xn

Now, χm =1 if k x + τm and g∂ (k, 2:^-1 ) = 0 if k > x + xrβ^. To deter entry, player
m has to commit to
T in the subgame with entry. The following inequality must be satished:

°V               °V

-°^(x, в(T)) = °   °c, 0)                        (14)

If xn-1 0, it follows from (S) that xrβ > x kn-1 > 2T. If (D) holds with equality, i.e.

T = x, then the LHS of equality [14] is equal to zero and the equality is satished if and only if
,         ~   =rn , ,         ~ , =rn

kn-1 x = x kn-1 = x + x .

Step ^. Working backwards to period n 2, we have two subgames; either player n 2 enters or
stays out of market n
2. First, capacity kn-2 would deter entry if:

°v                ° V

∂x^- (t, в(T)) = ∂x^

°xn-2              °xn-1

°          °      °V

(x™.,, 0 =      (x, 0)

n- 1 ’ /     rnrm × n ’ '

^x >x ^n

(15)


26




More intriguing information

1. Implementation of a 3GPP LTE Turbo Decoder Accelerator on GPU
2. Social Cohesion as a Real-life Phenomenon: Exploring the Validity of the Universalist and Particularist Perspectives
3. Spectral density bandwith choice and prewightening in the estimation of heteroskadasticity and autocorrelation consistent covariance matrices in panel data models
4. Developmental changes in the theta response system: a single sweep analysis
5. Implementation of the Ordinal Shapley Value for a three-agent economy
6. The name is absent
7. The name is absent
8. Voting by Committees under Constraints
9. Keystone sector methodology:network analysis comparative study
10. Experience, Innovation and Productivity - Empirical Evidence from Italy's Slowdown
11. Developing vocational practice in the jewelry sector through the incubation of a new ‘project-object’
12. The name is absent
13. Studying How E-Markets Evaluation Can Enhance Trust in Virtual Business Communities
14. Uncertain Productivity Growth and the Choice between FDI and Export
15. The name is absent
16. The name is absent
17. Mergers and the changing landscape of commercial banking (Part II)
18. American trade policy towards Sub Saharan Africa –- a meta analysis of AGOA
19. The name is absent
20. POWER LAW SIGNATURE IN INDONESIAN LEGISLATIVE ELECTION 1999-2004