A tool to forecast such behavior can be found in the Stackelberg leadership model devised by the German economist Heinrich Freiherr von Stackelberg in 1934. This model is a game theoretic model where the first entrant is called the 'leader'. All other subsequent entrants are called the 'followers'. According to the model, the leader can set the price and the quantity upon entering the market according to monopoly market equilibrium principles .The leader has every incentive to capture as much of the market as possible as it will be the most profitable move. If market demand is not unlimited, the followers will be forced to produce less than the leader. The followers would hurt itself and the leader if they try to produce more because it will drive the market price down. This move would be considered irrational as the profitability of both the leader and the follower would suffer.
For Ambro, this means the following:
- The potential entrants are likely to focus on a specific area's with a low initial quantity.
- The potential entrants would compete for market share through other tools than price
Ambro could prevent the dangers of entry by anticipating these moves of the competitor. However, it must be noted that the Stackleberg model is leaning heavily on assumptions such as rationality and full transparency of the market. Furthermore, it assumes that the leader has the capacity to capture more than 50% of the market at entry. But using this theoretical framework might provide a stepping stone onto a more complex market forecasting process.
Sources:
Stackelberg, H von, (1934), 'Market Structure and Equilibrium: 1st Edition' Bazin, Urch & Hill, Springer 2011
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