| Summary: | 碩士 === 佛光大學 === 經濟學系 === 101 === This paper analyzes how existing firms in the market could have enjoy monopolizing prices, outputs and profits and pursued maximum profits while potential entrants may threaten the profits that the former exclusively enjoy. In order to maximize their profits in the market, the former may use their advantages in the market to deter the latter at three different levels. The strategies to be examined are opening for entry, entry blockade and entry deterrence. This paper will also examine how the existing dominant firms and potential entrants interact at the three different level of deterrence and how the former use their pricing strategies to influence the entry of the latter. This paper uses Wal-Mart as an example to examine how it determines its strategies to deter threat from potential competitors in the retail market while maintaining its market advantages as well in what pattern it operates and determines its strategies in the market.
The model first assumes that there are only two firms in the market, which are coded 1 and 2 and represent the existing dominant firm and the potential entrant. Outputs from both are influenced by their own and rival's prices. It is assumed that the dominant firm's pricing strategy aims to maximize its profits. The profits of the two and the dominant firm 's deterring behavior are analyzed in four stages. The relationship between prices, outputs and profits of the two are analyzed in three stages based on the Bertrand price model.
The research findings from the example reveal that dominant firms can still make profits without having set high prices thanks to cost advantages. They can ignore some competitors or potential rivals who have to set high prices in the market due to higher fixed costs compared with the former and will naturally be excluded from the market. As the product exchangeability between two firms increases, the dominant one tends to set a lower price to prevent its competitor from snatching profits. In order to increase its market share, it will continue to lower its price to maintain its market advantages. The case of Wal-Mart is more like blockade.
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