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Entry and Exit over the Industry Life Cycle

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  • John Londregan
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    Abstract

    This article presents a theoretical model of the rivalry between two firms in a market that undergoes a life cycle of growth and eventual decline. Firms in this market have the option of exit and reentry. In the equilibrium for the growth phase, high entry costs can act like high exit costs, thereby conveying a commitment advantage. For some parameter configurations, this advantage is sufficient to enable a high cost firm to preempt its lower cost rival. During the decline phase, the smaller duopolist is able to outlast its rival, provided that the smaller firm's reentry costs are positive.

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    File URL: http://links.jstor.org/sici?sici=0741-6261%28199023%2921%3A3%3C446%3AEAEOTI%3E2.0.CO%3B2-2&origin=repec
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    Bibliographic Info

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

    Volume (Year): 21 (1990)
    Issue (Month): 3 (Autumn)
    Pages: 446-458

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    Handle: RePEc:rje:randje:v:21:y:1990:i:autumn:p:446-458

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    Cited by:
    1. Oscar Gutierrez Arnaiz & Francisco Ruiz-Aliseda, 2003. "Entry Patterns over the Product Life Cycle," Discussion Papers 1380, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Oscar Gutierrez Arnaiz & Francisco Ruiz-Aliseda, 2003. "Real Options with Unknown-Date Events," Discussion Papers 1378, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Das, Sanghamitra & Das, Satya P., 1997. "Dynamics of entry and exit of firms in the presence of entry adjustment costs," International Journal of Industrial Organization, Elsevier, vol. 15(2), pages 217-241, April.
    4. Esteve-Perez, Silviano, 2005. "Exit with vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 227-247, April.
    5. Amir, Rabah & Lambson, Val E., 2007. "Imperfect competition, integer constraints and industry dynamics," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 261-274, April.
    6. John Sutton, 1996. "Gibrats Legacy," STICERD - Economics of Industry Papers 14, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Arthur Zillante, 2005. "Survival in a Declining Industry: The Case of Baseball Cards," Industrial Organization 0505004, EconWPA.
    8. Ackermann, Malte & Brenner, Thomas & Lorenz, Steffi & Stephan, Michael, 2011. "Die Entwicklung der technologischen Wissensbasis in technologiegetriebenen Industrien am Beispiel der deutschen Solarindustrie: Eine empirische Analyse der Akteure und ihrer Herkunft," Discussion Papers on Strategy and Innovation 11-05, Department of Technology and Innovation Management (TIM), Philipps-University Marburg.
    9. Colombo, Massimo G. & Delmastro, Marco, 2000. "A note on the relation between size, ownership status and plant's closure: sunk costs vs. strategic size liability," Economics Letters, Elsevier, vol. 69(3), pages 421-427, December.
    10. Francisco Ruiz-Aliseda, 2003. "Strategic Commitment Versus Flexibility in a Duopoly with Entry and Exit," Discussion Papers 1379, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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