Question

Can anyone help me with this exercise? It's from David Kreps's A Course in Microeconomic Theory.

Problem 2 gives a standard sort of story on entry deterrence based on an action taken by the incumbent monopolist that makes her There are many stories of this sort; for others, see Tirole (1988). aggressive postentry. тore S industry with an incumbent monopolist, who is currently might not choose to 2. Consider an producing, and a potential entrant, who might or enter There is a range of possible production technologies for producing this good, which differ in the level of marginal and fixed costs. Each technol ogy is a constant marginal cost technology with marginal cost somewhere (from between 1 and 3 per unit. In the technology with marginal cost c the range from1 to 3), fixed costs are 15-4c. That is, lower marginal costs bring with them higher fixed costs. Any firm in this industry may choose employ, but it can make this choice once only. The choice of technology of any firm is known to all potential and whatever technology it wishes to C actual competitors. periods of production. In each, demand is given by D(P) = 9- P. In the first period, the incumbent monopolist We imagine that there are two is definitely a monopolist. The monopolist begins this period by select ing her production technology and then producing. In the second period, the entrant decides whether to enter at all. If he does enter, he picks his production technology. And then the two compete Cournot-style, si- multaneously picking quantities. If he does not enter, then the monopolist retains her monopoly and picks the quantity she wishes to sell. We assume that the entrant will enter only if he believes he will make positive profits, and the incumbent monopolist acts in a way that maximizes her sum of profits in the two periods. (Adding a discount factor only complicates the arithmetic.) (a) Suppose there was no monopolist select? threat of entry. What technology would the (b) Suppose the monopolist selects the technology you got to part (a). Will the entrant enter? If so, with which technology? as the answer (c) If the monopolist, in the first period, picks a technology that discourages the entrant from entering in the second period, we say that the monopolist has blockaded entry. Is there a technology the monopolist could pick in the first period that would blockade entry? If so, what range of technologies accomplishes this? (d) Given the threat of entry, what is the optimal course of action for the monopolist? How does the entrant respond to this? (What solution concept are you using?)

Answer 1

( A ) FOR NO THREAT OF ENTRY THE TECHNOLOGY MONOPOLIST WOULD SELECT ARE ---

INTRODUCTION OF NEW TECHNOLOGY -- The introduction of the new technology in the market helps them to produce more goods with good quality in cheap rate . The adaptation of the new technology helps the producer to compete in the present market with the opposite producers . It helps the producer to utilize there time and producing the product in the most effective and the efficient way. It helps in the production of the commodities in bulks in less time duration .

PRESENTING NEW PRODUCTS WITH CHEAP RATE IN THE MARKET -- If there is no threat for the entrant for the entry in the market this is not it for the producers to sustain in the market they must present some difference from the other producers , they should sell there products in comparatively less price than other producers in the market . By this it helps the producers to attract the customers in the market towards them to sell more and more products .

NEW OFFERS FOR THE CUSTOMERS --- By this technology or strategy they can able to attract more customers towards them . By offering good discounts and gifts to the customer in the purchasing of the commodities will lead them to buy more so that they can be able to ear good gifts and discounts over the purchasing of the products .

INVESTMENT IN ADVERTISEMENTS -- The producer can also attract more customer form far away by advertising attractively . The investment in advertisement helps the producer to describe the importance and the specialization of the product in the most attractive way so that the customer will get attracted with it and try to purchase it for there use.

DOOR DELIVERY --- If the product quality is good and the customers are so attracted to the products than the delivery to the door of the customer is the good strategy . Because sometimes they don't purchase the product due to the laziness of going out or carrying things , by providing this facility the customer will buy the product anytime they want to .

( B ) YES , the entrant will get the opportunity to get entry to the market because of the good price presented comparatively with the other producers and the facility of providing the products to the customers door step . Due to this more customer will get attracted towards the producers and will have trust on them , by this the producer will create his/er own goodwill which will help them to get the entry in the market and ability to sustain it .

( C ) By providing good price and quality of product to the customers and motivating there employees to performer to there best and maintaining good internal and external environment and relationships will helps the producer to sustain in the 1st period and entering  to the 2nd period in the monopolist market .

( D ) If there is barrier to entry in the market , the monopolist present in the market will try there best to tighten the entry barriers so that no outsiders can be able to enter in the market and they can be able to enjoy there monopoly in the market . The strategies and the technology the new producer is using as the way to enter in the market the existing producers adapts it before them so that the customer will stay to them and will attract more and more customers to them .

but with the strategies and the technology mentioned above will help the producer to enter in the market by adapting it to there company and performing it to the most effective and the efficient way they can .