Paper Info
Title
Announcing High Prices To Deter Innovation
Abstract
Price announcements-similar to the ones made by tech firms at media events-are effective in deterring innovation. By announcing (and setting) a high price, a firm increases its rivals' short-run profits, reducing the rival firms' incentives to innovate by magnifying their Arrow's replacement effect. We show that the equilibrium prices are greater and research and development (R&D) investments lower relative to when price announcements cannot be used strategically. We call this the R&D deterrence effect of price and show that it induces equilibrium prices that may exceed the multiproduct monopoly prices and even dissipate the consumer benefits of innovation.
Year
DOI
Venue
2021
10.1287/mnsc.2020.3642
MANAGEMENT SCIENCE
Keywords
DocType
Volume
Arrow's replacement effect, innovation deterrence, product market competition, price announcements
Journal
67
Issue
ISSN
Citations 
4
0025-1909
0
PageRank 
References 
Authors
0.34
0
2
Name
Order
Citations
PageRank
Guillermo Marshall100.34
Álvaro Parra200.34