DP12113 Strategic Entry and Potential Competition: Evidence from Compressed Gas Fuel Retail

Author(s): Giulia Pavan, Andrea Pozzi, Gabriele Rovigatti
Publication Date: June 2017
Keyword(s): potential entrants, preemption, retail fuel market
JEL(s): L12, L22, L81
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12113

We study the effect of competition on preemption incentives. An unexpected change in regulation in the Italian retail market for compressed natural gas fuel allows us to identify the potential entrants and creates exogenous variation in their number. We document that markets with a larger pool of potential competitors experience faster entry. We provide evidence suggesting that this occurs because a larger number of potential entrants raises firms' incentives to preempt.