Entry Deterrence

The Clean Development Mechanism (CDM) is a project based mechanism introduced by the Kyoto protocol (1997). Among other unsettled issues pertaining to CDM, this paper explores a dynamic implication of CDM baseline. A continuous time dynamic duopoly model of an incumbent firm and an entrant firm is constructed. We show that CDM baseline plays an important role when the incumbent (leader) and the entrant (follower) choose their timing of CDM project investments. Because of the baseline, the entrant's investment with higher technological potential gets postponed, while the incumbent invests earlier than otherwise.

In the earlier paper, we analyzed a possibility of CDM domino, where CDM (Clean Development Mechanism) is a flexibility mechanism adopted in the Kyoto protocol (KP) for the international scheme to prevent climate change due to emission of green house gases (GHG), and domino means adoption of one CDM project induces other CDM projects. In this paper, we attempt to analyze the opposite effect of project based mechanisms including CDM, i.e. the negative impact of adoption of one project upon other potential projects. This possibility has an important implication on the technological development for the prevention of climate change, as the early adoption of a technology receives an unduly special position so that newly developed technology has relatively fewer chances of a success. Even though people disagree over many issues, there seem to be widespread agreement that technological breakthrough is a key element for the long run success of international climate policy. Thus the evaluation of the effect of mechanisms on the technology development to overcome current reliance on carbon intensive technology is important, especially in the ongoing negotiation toward new schemes to be instituted for the period following the period covered by (KP).

African countries have experienced pervasive rent-seeking and repeated coups d'etat. I model these features to show how rent-reducing economic reforms deter coups and allow regime persistence. An incumbent ruler may choose to risk an attempted coup in the hope of surviving and obtaining high future rents. A permanent crisis that reduces future rents may be necessary for reforms, particularly if the regime is limited in its ability to credibly implement reforms. The model yields insights into the incidence of political instability and reforms in sub-Saharan African. The Ghanaian and Nigerian experiences are used as examples.

We consider a Stackelberg game, where a financially constrained leader competes with a "deep pocket" follower, and analyze the trade-off between a financial and a strategic advantage for both the design of financial contracts and market structure.

We consider a Stackelberg game, where a financially constrained leader competes with a "deep pocket" follower, and analyze the trade-off between a financial and a strategic advantage for both the design of financial contracts and market structure.

We analyze an innovation game between one incumbent and a large number of entrants. In the first stage, firms compete to develop innovations of high quality. They do so by choosing, at equal cost, the success probability of their R&D approach, where a lower probability goes along with a higher value in case of success-that is, a more radical innovation. In the second stage, successful entrants bid to be acquired by the incumbent. We assume that entrants cannot survive on their own, so being acquired amounts to a 'prize' in a contest. We identify an equilibrium in which the incumbent chooses the least radical project. Entrants pick projects of pairwise different success probabilities, and the larger the number of entrants, the more radical the most radical project becomes. Generally, entrants tend to choose more radical R&D approaches and are more likely to generate the highest value innovation. Thus, the need of entrants to be acquired yields an entirely new explanation of why radical innovations tend to come from entrants. We illustrate our theoretical findings by a qualitative empirical study of the Electronic Design Automation industry, and derive implications for research and management. We are grateful to Carliss Baldwin, Marc Gruber, Holger Patzelt, and three anonymous reviewers for the Academy of Management Meeting for helpful comments on earlier versions of this paper. Thanks also to participants in seminars and workshops at the Academy of Management Meeting, Advances in Industrial Organization (Vienna), DRUID Summer Conference 2010, Industrieökonomischer Ausschuss of the Verein für Socialpolitik, and Technische Universität München. Errors and oversights are ours alone.

Commitment is typically modeled by assigning to one of the players the ability to take an initial binding action. The weakness of this approach is that the fundamental question of who has the opportunity to commit cannot be addressed, as it is assumed. This paper presents a framework in which commitment power arises endogenously from the fundamentals of the model. We construct a finite dynamic game in which players are given the option to change their minds as often as they wish, but pay a switching cost if they do so. We show that for games with two players and two actions there is a unique subgame perfect equilibrium with a simple structure. This equilibrium is independent of the order and timing of moves and robust to other protocol specifications. Moreover, despite the perfect information nature of the model and the costly switches, strategic delays may arise in equilibrium. The flexibility of the model allows us to apply it to various environments. In particular, we study an entrydeterrence situation. Its equilibrium is intuitive and illustrative of how commitment power is endogenously determined.

We analyze an innovation game between one incumbent and a large number of entrants. In the first stage, firms compete to develop innovations of high quality. They do so by choosing, at equal cost, the success probability of their R&D approach, where a lower probability goes along with a higher value in case of success-that is, a more radical innovation. In the second stage, successful entrants bid to be acquired by the incumbent. We assume that entrants cannot survive on their own, so being acquired amounts to a 'prize' in a contest. We identify an equilibrium in which the incumbent chooses the least radical project. Entrants pick projects of pairwise different success probabilities, and the larger the number of entrants, the more radical the most radical project becomes. Generally, entrants tend to choose more radical R&D approaches and are more likely to generate the highest value innovation. Thus, the need of entrants to be acquired yields an entirely new explanation of why radical innovations tend to come from entrants. We illustrate our theoretical findings by a qualitative empirical study of the Electronic Design Automation industry, and derive implications for research and management. We are grateful to Carliss Baldwin, Marc Gruber, Holger Patzelt, and three anonymous reviewers for the Academy of Management Meeting for helpful comments on earlier versions of this paper. Thanks also to participants in seminars and workshops at the Academy of Management Meeting, Advances in Industrial Organization (Vienna), DRUID Summer Conference 2010, Industrieökonomischer Ausschuss of the Verein für Socialpolitik, and Technische Universität München. Errors and oversights are ours alone.

We analyze the effect of communicating distorted signals by interdependent agents who hold different levels of trust and make repeated decisions, independently and simultaneously, and who learn from each other. We found that in a duopoly model differential levels of misrepresentation and trust of firms have notable and non-trivial effects on profitability. With asymmetric misrepresentation, when the firms have both 1st and 2nd order trust, we find that the firm that misrepresents more gains more, whereas when the firms have 2nd order trust but no 1st order trust, the firm that misrepresents less gains more. We also discuss the effects of firms having different combinations of trust levels. Finally, we conclude with implications and limitations of our findings.

We develop a framework to examine how a standard evolves when a standard consortium or firm (incumbent) innovates either to improve the standard or to strengthen the installed base, which increases switching costs. Both investments make it more difficult for another firm (entrant) to introduce a standard by investing in technology improvement. Our analysis shows that that incumbent's strategy depends on whether the technology is in its infancy or has matured, and that entrants cannot supplant the existing standard. A standard consortium brings dynamic benefits by preventing replacement by an entrant. When the technology is in its infancy, the incumbent deters entry, but when the technology is mature, entry and the coexistence of two standards are tolerated. The dominance of a single standard, even for well-established technologies, suggests that incumbents have market power. Our results also suggest that having superior technology is not enough to enable entrants to supplant an existing standard.

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We analyze the effect of industrial espionage on limit-pricing models. We consider an incumbent monopolist engaged in R&D trying to reduce his cost of production and deter a potential entrant from entering the market. The R&D project may be successful or not and its outcome is a private information of the incumbent. The entrant has an access to an Intelligence System (IS hereafter) of a certain precision that generates a noisy signal on the outcome of the R&D project, and she decides whether to enter the market based on two signals: the price charged by the incumbent and the signal sent by the IS. It is assumed that the precision of the IS is exogenous and common knowledge. Our fundamental result is that for intermediate values of the IS precision, the set of pooling equilibria is non-empty even with profitable entry and the entrant enters if the IS tells her the R&D project was not successful. Since in the classical limit- pricing models the entrant never enters in a pooling equili...

How does asymmetric information (regarding production costs) in a spatial market alter the behavior of the incumbent firm which can credibly commit to her location choice? Although entry deterrence is irrelevant here, our analysis shows that entry blockading behavior emerges not only as the result of the incumbent's technological advantage but also as the result of the entrant's beliefs concerning this technological advantage. Using the concept of K-undefeated equilibrium, we characterize the unique location equilibrium for different values of the fixed and variable costs and we show that the conjecture formed by the entrant regarding the incumbent's location strategy does matter for the determination of the equilibrium strategies. First, we show that the market center may be an entry blockading location under incomplete information for a high cost inefficient incumbent who would accommodate entry under complete information. Second, we show that a low cost efficient incu...

The Clean Development Mechanism (CDM) is a project based mechanism introduced by the Kyoto protocol (1997). Among other unsettled issues pertaining to CDM, this paper explores a dynamic implication of CDM baseline. A continuous time dynamic duopoly model of an incumbent firm and an entrant firm is constructed. We show that CDM baseline plays an important role when the incumbent (leader) and the entrant (follower) choose their timing of CDM project investments. Because of the baseline, the entrant's investment with higher technological potential gets postponed, while the incumbent invests earlier than otherwise.

In the earlier paper, we analyzed a possibility of CDM domino, where CDM (Clean Development Mechanism) is a flexibility mechanism adopted in the Kyoto protocol (KP) for the international scheme to prevent climate change due to emission of green house gases (GHG), and domino means adoption of one CDM project induces other CDM projects. In this paper, we attempt to analyze the opposite effect of project based mechanisms including CDM, i.e. the negative impact of adoption of one project upon other potential projects. This possibility has an important implication on the technological development for the prevention of climate change, as the early adoption of a technology receives an unduly special position so that newly developed technology has relatively fewer chances of a success. Even though people disagree over many issues, there seem to be widespread agreement that technological breakthrough is a key element for the long run success of international climate policy. Thus the evaluation of the effect of mechanisms on the technology development to overcome current reliance on carbon intensive technology is important, especially in the ongoing negotiation toward new schemes to be instituted for the period following the period covered by (KP).

Currently, project based mechanisms under Kyoto protocol are prospering while its critical appraisal and examination of alternative options are undergone in the negotiation for post Kyoto schemes. Here, we investigate the mechanism from the viewpoint of new technological development, which is much awaited as the ultimate resolution for the climate change problem. We first lay out a theoretical model based upon economic theory and hint at possible problems. Then taking up the case of renewable energy projects, we illustrate the presence of the possibly negative effect, and compare this mechanism with other policy options raised in the course of negotiation, utilizing theoretical model based on game theory and theory of industrial organization.

This study investigates how leadership affects public policies in markets where the number of firms is endogenously determined. We focus on the relationship between the relative efficiency of an incumbent firm and the optimal entry tax (entry barrier). We find that this relationship depends on whether the incumbent can commit to the output before the entries of new firms. The optimal entry tax is decreasing (res. increasing) in the productivity of the incumbent when it takes (res. does not take) leadership. We also find that the optimal entry barrier occurring when the incumbent takes leadership is lower than that when it does not.

Downloadable! This paper analyzes entry deterrence strategies at sequential multi-unit English-type repeated auctions, based on entry deterrence observed at a series of yearly auctions of fishing rights occurring since the early 1990s in the Chilean sea bass fishery. It analyzes ...

Motivated by several recent antitrust cases, we study a strategic model of competition in intermediate-goods markets. Our model is a three-stage game with complete information in which a dominant firm offers a general tariff first and then a rival firm responds with a per-unit price, followed by a buyer making her decision to purchase from one or both firms. We characterize subgame perfect equilibria of the game and study the implications of the equilibrium outcome. Our paper makes three main contributions. First, it provides a novel explanation for the prevalence of nonlinear pricing (a menu of offers conditional on volumes) under duopoly in the absence of private information: The dominant firm can use a menu of offers to constrain its rival’s choices and extract surplus from the buyer. Second, it shows that when the capacity of the rival firm is constrained, as compared to linear pricing schemes, the nonlinear pricing tariff adopted by the dominant firm reduces the price, sales, a...

We analyse the wage choice of a monopoly union against entry threat. The wage carries information about market demand, which is crucial to an uninformed entrant, and in addition affects the entrant's post-entry cost through labour market institutions. The union may wish to deter or accommodate entry depending on whether the entrant will hire from a different source or from the union. Equilibrium wage is distorted downwardly (upwardly) for deterrence (accommodation); but because of wage correlation a low (high) wage can also turn entry profitable (unprofitable). Therefore, separating equilibrium may not always exist, and entry outcomes may be inefficient.

This study investigates how leadership affects public policies in markets where the number of firms is endogenously determined. We focus on the relationship between the relative efficiency of an incumbent firm and the optimal entry tax (entry barrier). We find that this relationship depends on whether the incumbent can commit to the output before the entries of new firms. The optimal entry tax is decreasing (res. increasing) in the productivity of the incumbent when it takes (res. does not take) leadership. We also find that the optimal entry barrier occurring when the incumbent takes leadership is lower than that when it does not.

We examine research and development (R&D) policies when a national firm forms an R&D alliance with a foreign competitor. Firms differ in their R&D capabilities, and adopt a profitsharing rule when R&D decisions are coordinated. National R&D tax/subsidy policies are set independently or harmonised. When firms coodinate their R&D decisions and governments choose R&D policies independently, R&D taxes are chosen. But there is no intervention if policies are harmonised. These policy outcomes affect the types of R&D alliance choosen. Agreements to share R&D information may be preferred to those combining coordination of R&D decisions and information sharing because of the R&D tax that coordination attracts.

This paper studies the in1pact of uncertain de1nand on firn1s 1 capacity decisions when they operate in an oligopolistic environ111ent. VVe define a two-stage game where firn1s choose capacity in the first stage without knowing which state of nature is going to realize, and output levels in the second, knowing which state is realized. VVe prove the existence of a syn1metric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent gan1e.

This paper investigates how an incumbent monopolist can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyze two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that this situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case, we show that entry deterrence can be reached only through merger with the seller of the input.

I lavori riflettono esclusivamente le opinioni degli autori e non impegnano la responsabilità del Dipartimento. SERIES e MATEF vogliono promuovere la circolazione di studi ancora preliminari e incompleti, per suscitare commenti critici e suggerimenti. Si richiede di tener conto della natura provvisoria dei lavori per eventuali citazioni o per ogni altro uso.

We study the strategic choice of compatibility between two initially incompatible network goods in a two-stage game played by an incumbent and an entrant firm. Compatibility may be achieved by means of a converter. We derive a number of results under different assumptions about the nature of the converter (one-way vs two-way) and the existence of property rights. In the case of a two-way converter, which can only be supplied by the incumbent, incompatibility will result in equilibrium. When both firms can build a one-way converter and there are no property rights on the necessary technical specifications, the unique equilibrium involves full compatibility. Finally, when each firm has property rights on its technical specifications, full incompatibility and preemption are again observed at the equilibrium. With incompatibility, entry deterrence occurs for sufficiently strong network effects. The welfare analysis shows that the equilibrium compatibility regime is socially inefficient for most levels of the network effects.

This paper investigates how an incumbent monopolist can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyze two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that this situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case, we show that entry deterrence can be reached only through merger with the seller of the input.

It is known that if the number of entering firms is endogenous (free entry markets), privatization is not necessarily welfare neutral in mixed oligopolies under a uniform production subsidy policy. We revisit this problem by considering another policy tool, the output floor regulation. We investigate three free entry models with different time structures, a Cournot and two Stackelberg models. We find that neutrality is restored in free entry markets under the optimal output floor regulation, regardless of the time structure.

This study investigates how leadership affects public policies in markets where the number of firms is endogenously determined. We focus on the relationship between the relative efficiency of an incumbent firm and the optimal entry tax (entry barrier). We find that this relationship depends on whether the incumbent can commit to the output before the entries of new firms. The optimal entry tax is decreasing (res. increasing) in the productivity of the incumbent when it takes (res. does not take) leadership. We also find that the optimal entry barrier occurring when the incumbent takes leadership is lower than that when it does not.

In this chapter, we study the pricing strategies of firms in a multi-product diffusion model where we use a new formalization of the price effects. More particularly, we introduce the impact of prices on one of the factors that affect the diffusion of new products: the innovation coefficient. By doing so, we relax one of the hypotheses in the existing literature stating that this rate is constant. In order to assess the impact of this functional form on the pricing policies of firms selling optional contingent products, we use our model to study two scenarios already investigated in the multiplicative form model suggested by Mahajan and Muller (1991) (M&M). We follow a 'logical experimentation' perspective by computing and comparing the results of three models: (i) The M&M model, (ii) a modified version of M&M where the planning horizon is infinite, and (iii) our model, where the new formalization of the innovation effect is introduced. This perspective allows us to attribute the differences in results to either the length of the planning horizon, or to our model's formalization. Besides its contribution to the literature on pricing and diffusion, this paper highlights the sensitivity of results to the hypothesis used in product diffusion modelling and could explain the mixed results obtained in the empirical validations of diffusion models (Mesak, 1996).

While game theory has been transformative for decision-making, the assumptions made can be overly restrictive in certain instances. In this work, we focus on some of the assumptions underlying rationality such as mutual consistency and best response, and consider ways to relax these assumptions using concepts from level-k reasoning and quantal response equilibrium (QRE) respectively. Specifically, we provide an informationtheoretic two-parameter model that can relax both mutual consistency and best response, but can recover approximations of level-k, QRE, or typical Nash equilibrium behaviour in the limiting cases. The proposed Quantal Hierarchy model is based on a recursive form of the variational free energy principle, representing self-referential games as (pseudo) sequential decisions. Bounds in player processing abilities are captured as information costs, where future chains of reasoning are discounted, implying a hierarchy of players where lower-level players have fewer processing resources. We demonstrate the applicability of the proposed model to several canonical economic games.

Paolo Sylos Labini's Oligopoly Theory and Technical Progress (1957) is considered one of the major contributions to entry-prevention models, especially after Franco Modigliani's famous formalization. Nonetheless, Modigliani neglected Sylos Labini's major aim when reviewing his work (1958), particularly his demonstration of the dynamic relation between industrial concentration and economic development. Modigliani addressed only Sylos' microeconomic analysis and the determination of the long-run equilibrium price and output, concentrating on the role played by firms' anticipations. By doing so he shifted attention from Sylos' objective analysis to a subjective approach to oligopoly problem. This paper discusses Sylos' and Modigliani's differing approaches, derives the origin of the Sylos postulate and sets Modigliani's interpretation of Sylos' oligopoly theory in the context of his 1950s research into firms' behaviour under uncertainty.

We study how market structures and asymmetries in learning technologies affect trade in a product market. In this market, a new product of unknown quality is introduced to challenge an existing product of known quality. We show that market efficiency is achieved both under monopoly and competition if buyers are symmetric in the amount of information they generate when they consume the new product. If buyers are instead asymmetric, only the monopolistic market is efficient. We identify the inefficiencies and analyze their properties. Finally, we explore our results' robustness under different assumptions about the ability to price discriminate.

This paper investigates how an incumbent monopolist can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyze two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that this situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case, we show that entry deterrence can be reached only through merger with the seller of the input.

Researchers have written extensively on the impact that strategic alliances between airlines have on airfare, but little is known of the market entry deterrent impact of strategic alliances. Using a structural econometric model, this paper examines the market entry deterrent impact of codesharing, a form of strategic alliance, between incumbent carriers in domestic air travel markets. We find evidence of market entry deterrence, but deterrence impact depends on the specific type of codesharing between market incumbents as well as the identity of the potential entrant. We quantify the extent to which market incumbents' codesharing influences potential entrants market entry cost and probability of market entry.

In this note we analyze the viability of a commitment strategy when there are errors in communication. We consider an entry deterrence game where with a certain probability the Incumbent's decision is either perfectly observed by the Potential Intruder or, with complementary ...

In this paper we show that, in the presence of an investment that provides all firms in an industry with positive externalities, a firm may choose an 'extreme policy'. Specifically, within the context of a locational game, we show that a firm may make a positive profit by locating outside a city, if in doing so it manages to induce other firms to undertake investments that they would not undertake if the first firm was located within the city. Our finding is likely to have implications for similar locational issues such as ones facing political parties.

In this paper, we examine how uncertainty can aect successive mar- kets, when uncertainty can jointly in‡uence both the upstream and down- stream markets'conditions. The main result of the paper is that the equi- librium input and output quantities under stochastic dependence can be higher or lower than the corresponding quantities in the case of certainty equivalence depending on how much dependent are the events. JEL classi…cation: L1, L120

BONG-JU KIM † and INHO CHUNG ‡ †National Assembly Budget Office ‡Korea Telecom This paper presents a model of inter-market competition through bundling wherein each firm has a cost advantage in a different market and competes against fringe firms. Without cost saving through bundling, there is no equilibrium in which the bundled good is provided. However, with cost saving through bundling, there exist equilibria in which one firm provides bundling and the other does not. In this case, bundling can be used as a device for entry deterrence. Finally, we illustrate that bundling can reduce social welfare by discouraging the efficient entrant from entering the market.j ere_474 116..132 JEL classification: D43, L11.

BONG-JU KIM † and INHO CHUNG ‡ †National Assembly Budget Office ‡Korea Telecom This paper presents a model of inter-market competition through bundling wherein each firm has a cost advantage in a different market and competes against fringe firms. Without cost saving through bundling, there is no equilibrium in which the bundled good is provided. However, with cost saving through bundling, there exist equilibria in which one firm provides bundling and the other does not. In this case, bundling can be used as a device for entry deterrence. Finally, we illustrate that bundling can reduce social welfare by discouraging the efficient entrant from entering the market.j ere_474 116..132 JEL classification: D43, L11.

What do environmental emissions have in common with knowledge? This chapter sees both as privately produced public goods 1 and gives conditions for efficient allocation of resources in economies with such goods. These conditions are independent of the units of measurement and extend those of Lindahl, Bowen, and Samuelson for standard public goods. The motivation is to understand efficiency in markets in which new types of items such as knowledge and environmental assets are traded along with standard private goods. Both are public goods in that they are not rival in consumption. However, they are privately produced and thus differ from classical public goods that are produced by governments. Following Chichilnisky, Heal, and Starrett [1], we consider competitive markets, in which every trader faces the same price for each good. The institutional structure for trading public goods contemplated here is similar to that of the emissions markets for sulfur dioxide (SO 2) that are traded in the Chicago Board of Trade since 1993. The example of global emissions markets is especially interesting. These were created recently by Article 17 of the Kyoto Protocol, where 166 nations explicitly agreed on the creation of such tradable rights among Annex B countries, which are mostly industrial nations (see chapters 11, 12, and 14 of this volume, and the Appendix). These markets were

In many emerging economies incumbent firms often use dubious means to deter entry of other firms. We analyze this scenario in a three-stage game of entry deterrence. The incumbent has incomplete information about the entrant's costs but can increase this cost by resorting to unfair means (e.g. bribing a politician who harms the entrant). We completely characterize the optimal bribe and show that this depends on the "fairness index" and the "differentiation" parameter. We also show that zero bribes need not maximize welfare and market quality. Our results seem to be compatible with anecdotal evidence from emerging economies such as India.

This paper examines firms' incentives to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investm ents greater than those of a monopolist. We then show that a change in access charges induces a trade off in social welfare. That is, a decrease in the access charge expands the social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of socially optimal investment timing is then discussed,

In this paper, we analyze the interaction between an incumbent rm's nancial contract with a bank and its product market decisions in the face of the threat of entry, in a dynamic model. The main results of the paper are: there exists a separating equilibrium with no limit pricing the low-cost incumbent r e p a ys more to the bank in the rst period, due to the threat of entry and there are parameter values for which the bank makes more pro ts with the threat of entry than without.

We examine the role of cost uncertainty in a firm's choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either form of foreign investment exposes home and foreign firms to common country-specific cost shocks, implying a better knowledge of each other's country-specific shocks. Further, a joint venture allows the firms to learn each other's firm-specific cost. A firm's plant location decision depends on the interaction of these two effects, which depend on the type of competition and the substitutability of the firm's products.

AT&T was known for both funding a world-class research lab and delaying deployment of useful innovations from the lab. To explain this behavior we consider a model with an incumbent facing a potential entrant. The incumbent can choose from two technologies for production: old and new. The entrant's choice is limited to the old. We show that, under correlated production uncertainty, use of the common technology exposes the entrant to a greater risk. Therefore, the incumbent may suppress a newer, more efficient technology in favor of the old as a means to deter entry.