Economies of Scope, Entry Deterrence and Welfare

• Autor(a) principal: PIRES, CESALTINA PACHECO
• Data de Publicação: 2013
• Outros Autores: Catalão-Lopes, Margarida
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10174/10136; https://doi.org/10.1515/bejeap-2012-0078
• topic: Economies of scope; Entry deterrence; Asymmetric information; Signalling

This paper develops a model where the incumbent may expand to a related market to signal economies of scope and deter entry in the former market. We show that the incumbent only expands when scope economies are large enough. Thus expansion is a signal of larger economies of scope and, for certain parameter values, leads to entry deterrence. Although our game is twoperiod, the expansion strategy creates a long-term advantage. We further investigate the implications of prohibiting an entry-deterrent expansion. A major finding is that, in our model, this prohibition always decreases consumer surplus. In terms of global welfare, the impact is ambiguous but negative for many parameter values.