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Profit raising entry under mixed behavior

Author

Listed:
  • Duarte Brito

    (NOVA School of Science and Technology, Department of Applied Social Sciences (DCSA)
    Universidade NOVA de Lisboa)

  • Margarida Catalão-Lopes

    (Universidade de Lisboa
    Universidade de Lisboa)

Abstract

This paper provides a new theoretical justification for entry to raise incumbent’s profit. In an industry with product differentiation and when firms use different strategic variables, we show that entry by an additional price setter may end up benefitting another price setting incumbent. This is due to the response of existing quantity setters, who contract their output after entry. Such reduction in output, which creates demand for the price setters, may more than compensate the reduction in price that is brought about by entry, provided that the products are not sufficiently differentiated.

Suggested Citation

  • Duarte Brito & Margarida Catalão-Lopes, 2023. "Profit raising entry under mixed behavior," Journal of Economics, Springer, vol. 138(1), pages 51-72, January.
    • Handle: RePEc:kap:jeczfn:v:138:y:2023:i:1:d:10.1007_s00712-022-00797-5
    DOI: 10.1007/s00712-022-00797-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Profit raising entry; Product differentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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