Spatial Preemption Research Articles

Credible spatial preemption in a mixed oligopoly

Credible spatial preemption in a mixed oligopoly

A note on credible spatial preemption in an entry–exit game

I investigate how an incumbent firm deters entry by crowding the market, even when the incumbent can withdraw its stores in response to entry. In a two-location model, Judd (1985) shows such spatial entry deterrence is not credible. In contrast, I demonstrate spatial preemption can be credibly employed in a circular-city model if the incumbent can build its stores on sufficiently many locations and transportation costs are linear.

Branding, Cannibalization, and Spatial Preemption: An Application to the Hotel Industry

In many settings where spatial preemption might be expected to produce tightly concentrated industry structures, firms share the market instead. Using a strategic investment model, I show that this can be rationalized by heterogeneous brand preferences, which cause new product introductions by incumbent firms to disproportionately cannibalize sales from existing affiliated products. I then present an empirical example using data on the branded segment of the lodging industry, which has many characteristics associated with spatial preemption, but is also characterized by strong brand-preferences. Consistent with the theoretical model, I find large within-firm revenue cannibalization effects from new hotel openings. These effects are attenuated -- but not removed -- by brand-proliferation strategies. Moreover, I find evidence that the industry practice of franchising through non-exclusive contracts softens inter-firm competition. Analyses of growing hotel markets support the conclusion that intra-firm cannibalization inhibits spatial preemption. Growth is far more likely to occur as a result of entry than expansion.

A Note on Credible Spatial Preemption in an Entry-Exit Game

I investigate how an incumbent firm deters entry by crowding the market, even when the incumbent can withdraw its stores in response to entry. In a two-location model, Judd (1985) shows such spatial entry deterrence is not credible. In contrast, I demonstrate spatial preemption can be credibly employed in a circular-city model if the incumbent can build its stores on sufficiently many locations and transportation costs are linear.

First-mover advantage in an Internet-enabled market environment: conceptual framework and propositions

The competitive market environment has evolved from a physical market environment (PME) to an Internet-enabled market environment (IME) encompassing the physical and electronic marketplaces. At the same time, an increasing number of information products are available in both analog and digital forms. For information products in digital form, the IME also serves as a distribution channel. Such developments raise questions concerning the extent to which extant perspectives on first-mover advantage developed in the context of the PME hold in the IME, generally, and for information products specifically. We address this issue by developing a conceptual framework that focuses on selected sources of first-mover advantage delineated in the extant literature and advance propositions concerning sources that will have a greater or lower effect in the IME relative to the PME. A central message for first-movers in the IME that emerges from our conceptual analysis is to focus on achieving superior positions in resources that would enable them to get close to the customers fast, create switching costs, and retain them though ongoing investments in multi-faceted innovations. A second message that emerges for first-movers in the IME is they must take note of and make strategic adjustments for the potentially diminished significance of some traditional sources of first-mover advantage. These sources include spatial preemption, preemptive investment in capacity, and consumers’ choice behavior under conditions of uncertainty about product quality. We discuss the implications for further conceptual and empirical work in this area of increasing significance.

Direct Format Competition on the Radio Dial and the Telecommunications Act of 1996: A Five-Year Trend Study

Until now, the effect of the 1996 Telecommunications Act on direct format competition, the broadcasting of identical radio formats within the same market, has not been examined. Analysis of Arbitron's top 152 individual markets from 1995 to 2000 revealed an 11.18% net gain in the number of radio markets experiencing an increase in direct format competition (a market basis). With the 152 markets combined, the net number of instances in which direct format competition occurred increased 8.71% from 1995 to 2000 (an overall basis). However, when examined vis-a-vis market size, direct format competition in large markets decreased 12% on a market basis and decreased a statistically significant 10.71 % on an overall basis. Furthermore, 46.28% of the total Arbitron audience in this study suffered a loss in direct format competition. These findings not only challenge the format diversity's claim that the Act was innocuous, they also suggest that spatial preemption in radio may not be a successful means by which to deter competition.

Do Mergers Increase Product Variety? Evidence from Radio Broadcasting

Mergers can reduce costs and alter incentives about how to position products, so that theory alone cannot predict whether mergers will increase product variety. We document the effect of mergers on variety by exploiting the natural experiment provided by the1996 Telecommunications Act. We find that consolidation reduced station entry and increased the number of formats available relative to the number of stations. We find some evidence that increased concentration increases variety absolutely. Based on the programming overlap of jointly owned stations, we can infer that the effects operate through product crowding that is consistent with spatial preemption.

Spatial preemption with finitely lived equipments

This paper proposes a dynamic approach to potential competition in a spatial framework where productive investments are location-specific and have finite duration. We define a notion of strategic sustainability against multiple entries, in which spatial preemption comes from anticipated renewal policies of plants. We show that, in an infinite horizon model with no discounting, potential competition leads to average-cost renewal but a positive value can be attached to incumbency. The conditions for the existence of such strategically sustainable structures are determined in the model of the circular city, under mill or discriminatory pricing rules. Our results are finally related to the usual two-stage notion of free entry equilibrium in spatial models.

Credible spatial preemption through reputation extension

Judd (1985, Rand Journal of Economics 16, 153–166) shows that the results of previous models of brand proliferation and spatial preemption are substantially weakened if the incumbent does not have high exit costs. This paper illustrates how an incumbent firm can make spatial preemption credible by extending reputation. This is the case with product extensions, which are new products but are linked to the successful reputation of another product already on the market. It is proved that a product extension can make spatial entry preemption credible, because its withdrawal (in response to a competitor's new brand) can have a negative reputational effect on the incumbent's original product.

Credible Spatial Preemption through Franchising

The analysis of strategic behaviorfrequently revolves around the problem of identifying commitment technologies that credibly expand strategic opportunities. This article revisits the question of spatial preemption to investigate the potential for organizational form to serve as a commitment in the effort to deter entry. The analysis demonstrates first that delegation of pricing authority to independent outlet operators through a franchise contract can deter entry. Moreover, this delegation can be made credible in the sense of being renegotiation-proof through appropriate contractual design. * The analysis of strategic interaction is frequently centered around the dynamic problem of commitment. Often, actions that appear to enhance strategic performance fail to coincide with contemporaneous utility or profit maximization and so cannot be considered credible. Consequently the focus of strategic analysis is often on identifying commitment technologies that credibly expand strategic opportunities. A case in point is the study of spatial preemption. Schmalensee ( 1978 ) and Eaton and Lipsey ( 1979) both suggested that a monopolist who arrived first to a differentiated product market could preempt entry by filling up the space of products. In this way, the monopolist could restrict the market area available to an entrant's differentiated product so that, with competitive pricing on the monopolist's neighboring products, the entrant's net profits would be below zero. These models overcame the commitment problem that plagues efforts to deter entry by simple limit or predatory pricing by employing the technology of spatial location. Judd ( 1985 ), however, showed that these models merely traded one commitment problem for another: since entry reduced prices at the monopolist's locations as well as the entrant's, the monopolist faced the incentive to shut down locations and raise prices in the event that entry did occur. Judd argued that in the absence of exit costs, the monopolist would in fact remove the locations in response to entry. Consequently the monopolist was left with the same set of strategic opportunities available in the absence of the technology of spatial location.

The Impact of Preemption on the Zonation of Two Typha Species Along Lakeshores

The objective of this study was to examine the effects of preemption on rates of competitive displacement and on competitive outcomes for two Typha species (T. latifolia, TL, and T. domingensis, TD) growing along gradients of water depth. Evidence from several experiments indicated that the relative competitive abilities of the two species were size dependent. When TL and TD competed as small seedlings, TD was generally favored while TL was the better competitor when the plants were larger before beginning to compete. Because of this effect, initial density was determined to influence strongly the early outcome of competition. When seeds were sown at high densities, TD gained an early advantage; at lower densities TL was the better competitor. At very low densities, such as when the species competed as clones, TL was very much the better competitor. In the absence of preemption, the results showed that differences in germination, seedling growth, and competitive ability act to create an initial segregation of species at the waterline where establishment occurs. TL is upslope and TD downslope initially, but as the species spread downslope, TL progresses faster because of its greater capacity for vegetative spread, and the result is a widespread overlap along the gradient. Studies of the rate of competitive displacement between established plants yielded an estimate of slightly <6 yr required for complete segregation of two species starting from maximum overlap. Preemption had a strong effect on early growth and distribution of the species. After the initial effects of temporal disadvantage, delayed plants were able to recover under certain circumstances. Both species recovered better in shallow water than in deep water, and, in general, TL recovered better than did TD. Experiments on spatial preemption found that the species moved towards the expected segregation of TL upslope and TD downslope regardless of the initial conditions. This process of recovery was somewhat slower for established stands of adults than for seedlings. Comparison of aerial photographs of natural populations of TL and TD in PAR Pond (South Carolina) in 1980 with distributions in 1984 also suggests that recovery from even large—scale spatial preemption can occur over only a few years time. These results suggest that extreme temporal advantage by either species can lead to extinction of the other species and that the magnitude of the effect depends upon the initial density of seedlings. If both species survive the initial phase of competition and the habitat remains undisturbed, subsequent vegetation spread and competitive displacement can over—come the initial effects of spatial and temporal preemption, resulting in a predictable zonation.

Credible Spatial Preemption

It is often argued that incumbent firms may deter entry by preemptive investment in new goods. We show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry. Once entrants are in an industry, an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods. Such a reaction makes entry more attractive to a potential entrant. The equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes, as exit costs are low, and as the competition between producers of the same good is more intense.