A Study on the Capacity-Constrained Price Competition and Entry Decision with Flexibility

Focusing on the defects of literatures,this paper,under a constrained capacity,builds a two-stage model in which the entrant first makes the entry decision and then performs a price competition with the incumbent,applies the real-option approach to study the entry decision,and gives some rules of the entry decision with flexibility.The results show that a higher(lower) entry cost,a more (less) risky market,or a higher(lower) incumbent's capacity is likely to postpone(advance) the entry.