Stackelberg Leadership with Product Differentiation and Endogenous Entry: Some Comparative Static and Limiting Results
AbstractAllowing for endogenous entry in the traditional Stackelberg setup with product differentiation, leads to reverting of the standard comparative static and limiting results. Unlike in the standard Stackelberg setup with barriers to entry, the leader's profit increases when the differentiation becomes lower. The reason is that competition becomes tougher when products become more alike, and consequently, fewer firms enter in equilibrium. On the other hand, increasing product differentiation towards its limit results in number of entrants tending to infinity and for very large market, the profit of the leader approaches zero. Thus market structure approaches monopolistic competition, rather than the standard monopoly outcome that occurs with exogenous number of followers.
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Stackelberg leadership; product differentiation; endogenous entry.;
Other versions of this item:
- Krešimir Žigić, 2012. "Stackelberg leadership with product differentiation and endogenous entry: some comparative static and limiting results," Journal of Economics, Springer, vol. 106(3), pages 221-232, July.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-10 (All new papers)
- NEP-BEC-2009-01-10 (Business Economics)
- NEP-COM-2009-01-10 (Industrial Competition)
- NEP-IND-2009-01-10 (Industrial Organization)
- NEP-MIC-2009-01-10 (Microeconomics)
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