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Sophisticated Entry in a Model of Spatial Competition

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Author Info
B. Curtis Eaton
Myrna Holtz Wooders

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Abstract

We analyze free-entry equilibrium in a model of spatial competition in which locations of established firms are fixed and entrants' profit expectations are rational. Our most interesting results concern large economies -- economies in which the number of firms is arbitrarily large. When the average cost function is U-shaped, free-entry equilibrium is unique, socially optimal, and characterized by zero profit. In contract, when there are no diseconomies of scale, even large economies are stubbornly imperfect. Firms can earn substantial pure profit and free-entry equilibrium is neither unique nor socially optimal.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198522%2916%3A2%3C282%3ASEIAMO%3E2.0.CO%3B2-M&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 16 (1985)
Issue (Month): 2 (Summer)
Pages: 282-297
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Handle: RePEc:rje:randje:v:16:y:1985:i:summer:p:282-297

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  5. Damien Neven & Jacques-François Thisse, 1989. "Choix des produits : concurrence en qualité et en variété," Annales d'Economie et de Statistique, ADRES, issue 15-16, pages 05, Juillet-D. [Downloadable!]
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