Title: Entry-deterrence externalities and relative firm size
Abstract: Most models of entry deterrence through preemptive investment consider either a monopolist or a cartel. This suppresses an important question: how does threat of entry affect capital choices of several noncolluding incumbents. There are two opposing forces. Expanding capital to deter entry generates a public good to other incumbents, but also increases the expanding firm's share of market output. We address the trade off in a model of sequential entry with foresight, where in the first stage capital choices are made sequentially and in the second stage the output interaction is Cournot or competitive. Under competitive interaction, we prove that the first entrant either admits all other potential entrants or deters all - it never allows partial entry. Under Cournot, we find (using simultaneous) some rather surprising patterns: easier entry can make the first entrant's capital larger or smaller; the first entrant can be smaller than the second but is never less profitable; the first entrant's profit is always reduced by increased entry threat but profits of other entrants can be increased.
Publication Year: 1988
Publication Date: 1988-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 18
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