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The Effect of Leasing versus Buying on Entry Deterrence

✍ Scribed by Wen Mao; Peter Zaleski

Publisher
John Wiley and Sons
Year
2011
Tongue
English
Weight
117 KB
Volume
32
Category
Article
ISSN
0143-6570

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✦ Synopsis

Models of entry deterrence typically require that incumbents possess a cost advantage as a prerequisite for deterring entry. Potential entrants possess a cost advantage over incumbents, however, if input costs fall over time. This paper models the behavior of an incumbent and a potential entrant when the input cost falls over time and the firms have the option of buying or leasing the input. The model shows that if the future cost savings from new technology exceed the marginal transaction costs of leasing the current equipment, then leasing increases the incumbent's ability to deter entry. Copyright Β© 2011 John Wiley & Sons, Ltd.

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