Wednesday, October 26, 2022

Measuring Deterrence Motives in Dynamic Oligopoly Games

Measuring Deterrence Motives in Dynamic Oligopoly Games


Limin Fang

University of British Columbia

Nathan Yang

Cornell University



This paper presents a new decomposition approach for measuring deterrence motives in dynamic oligopoly games. Our approach yields a scale-free and interpretable measure of deterrence motives that informs researchers about the proportion for which deterrence motives account of all entry motives. We illustrate the use of our new approach by conducting an empirical case study about the dynamics of coffee chain stores in Toronto, Canada from 1989 to 2005. Under this empirical context, our measure of deterrence motives, quantified based on the estimates of structural primitives, suggests that a noticeable proportion of entry motives can be attributed to deterrence, and is as high as 32% for the increasingly dominant coffee chain Starbucks in certain types of markets. In summary, the empirical study demonstrates that our method has the capabilities to establish the "who" and "when" dimensions of deterrence.

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