Information Economics with Real Estate Applications

Chapter 4 Strategic interactions

This chapter focuses on market entry strategies. After an introduction to reaction functions with a general action, we use an example of shopping malls and their tenants to show how companies can enter a new market, and how the companies already in the market can prevent their competitors from doing so.

4.1 Introduction

We saw in Chapter 3 on oligopolies that the reaction functions when quantity is the strategic variable are downward sloping, and that they are upward sloping when price is the strategic variable. To study these properties further, we let a₁ and a₂ denote the value of an action taken by Firm 1 and Firm 2 respectively, and write the profit of Firm 1 as

$${\pi }_1\left(a_1,a_2\right),$$

and the profit ...