Wage-Rise Contract and Entry Deterrence: Bertrand and Cournot

Kazuhiro Ohnishi

This paper is based on a two-stage model of an incumbent firm and a potential entrant. We consider two cases in terms of strategic relevance between both firms. We also consider both price-setting competition and quantity setting competition. Therefore, we examine four cases. Each case is correlated with a prior commitment that generates kinks in the reaction curve of the incumbent firm. We then investigate the entry-deterring equilibrium outcomes resulting from the prior commitment of the incumbent firm in all four cases.

Key Words: Entry deterrence; Wage-rise contract; Price-setting model; Quantity-setting model.
JEL Classification Numbers: C72, D21, L13.