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A Theory of Market Structure with Sequential Entry

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Author Info
B. Curtis Eaton
Roger Ware

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Abstract

This article sets out a theory of market structure with sequential entry. We characterize the perfect Nash equilibrium to the entry game in several propositions. First, equilibria never involve excess capacity. Second, a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically, i.e., with no further entry. Third, the equilibrium number of firms is the smallest number that can deter entry. Fourth, aggregate output in equilibrium is no smaller than the limit output. We calculate some explicit solutions to the model and examine comparative static properties.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 18 (1987)
Issue (Month): 1 (Spring)
Pages: 1-16
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Handle: RePEc:rje:randje:v:18:y:1987:i:spring:p:1-16

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  1. Kyle Bagwell & Garey Ramey, 1989. "Oligopoly Limit Pricing," Discussion Papers 829, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  2. John Sutton, 1995. "One Smart Agent," STICERD - Economics of Industry Papers 08, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  3. David Encaoua, 1989. "Différenciation des produits et structures de marché: un tour d'horizon," Annales d'Economie et de Statistique, ADRES, issue 15-16, pages 04, Juillet-D. [Downloadable!]
  4. Brunekreeft, G. & Newbery, D., 2005. "Should Merchant Transmission Investment be Subject to a Must-offer Provision?," Cambridge Working Papers in Economics 0534, Faculty of Economics, University of Cambridge. [Downloadable!]
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  5. Michael Waldman, 1987. "Underinvestment in Entry Deterrence: When and Why," UCLA Economics Working Papers 456, UCLA Department of Economics. [Downloadable!]
  6. Natália Barbosa, 2003. "What drives new firms into an industry? An integrative model of entry," Working Papers 23, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho. [Downloadable!]
  7. Erik Benrud, 2003. "Competition Between Low and High Quality Products in the Financial Services Market," Journal of Financial Services Research, Springer, vol. 23(2), pages 133-147, April. [Downloadable!] (restricted)
  8. L. Lambertini & G. Rossini, 2000. "Excess Capacity in Oligopoly with Sequential Entry," Working Papers 384, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  9. Helmers, Claes Gustav & Connor, John M. & Florax, Raymond J.G.M. & Vroom, Govert, 2009. "Entry, Ownership Form, and Spatial Location: An Analysis of the Hotel Industry," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49561, Agricultural and Applied Economics Association. [Downloadable!]
  10. Susanne Wied-Nebbeling, 2007. "Fringe firms: Are they better off in a heterogeneous market?," Working Paper Series in Economics 31, University of Cologne, Department of Economics. [Downloadable!]
  11. Kyle Bagwell & Garey Ramey, 1990. "Capacity, Entry and Forward Induction," Discussion Papers 888, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
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