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Entry Mistakes

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  • Cabral, Luís M B

Abstract

Frequently, aspiring entrants have only limited information about their potential rivals’ entry decisions. As a result, the outcome of the entry game may be that more firms enter than the market can sustain; or, at least, that unnecessary entry investments are made. We refer to these outcomes as ‘entry mistakes’. We consider two models of non-coordinated entry. In these models, entry mistakes occur because of lags in observing rivals’ entry decisions (grab-the-dollar entry) or because entry investments take time (war-of-attrition entry). The wide-body aircraft industry in the late 1960s is presented as supporting evidence for the models’ assumptions. We also discuss the welfare implications of non-coordinated free entry. Both models predict that entry incentives are excessive (resp. insufficient) when duopoly profits are high (resp. low). If entry costs are high, however, entry incentives are excessive under war-of-attrition entry but insufficient under grab-the-dollar entry.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1729.

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Date of creation: Nov 1997
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Handle: RePEc:cpr:ceprdp:1729

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Keywords: aircraft manufacturing; Entry; entry regulation; Welfare;

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Cited by:
  1. Francesca Lotti & Enrico Santarelli, 2001. "Industry Dynamics and the Distribution of Firm Sizes: A Non-Parametric Approach," LEM Papers Series 2001/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Braunerhjelm, Pontus, 2010. "Entrepreneurship, Innovation and Economic Growth - past experience, current knowledge and policy implications," Working Paper Series in Economics and Institutions of Innovation 224, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  3. Waddams Price, Catherine & Bennett, Matthew, 1999. "New gas in old pipes: opening the UK residential gas market to competition," Utilities Policy, Elsevier, vol. 8(1), pages 1-15, March.
  4. Harald Strotmann, 2007. "Entrepreneurial Survival," Small Business Economics, Springer, vol. 28(1), pages 87-104, January.
  5. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press, vol. 16(3), pages 455-488, June.
  6. Kofi Nti, 2000. "Potential competition and coordination in a market-entry game," Journal of Economics, Springer, vol. 71(2), pages 149-165, June.
  7. Agustí Segarra & Maria Callejón, 2002. "New Firms' Survival and Market Turbulence: New Evidence from Spain," Review of Industrial Organization, Springer, vol. 20(1), pages 1-14, February.
  8. Francesca Lotti & Marco Vivarelli & Enrico Santarelli, 2004. "Gibrat's Law and Market Selection," Papers on Entrepreneurship, Growth and Public Policy 2004-28, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  9. Pei-Chou Lin & Deng-Shing Huang, 2006. "Technological Regimes and Firm Survival: Evidence across Sectors and over Time," IEAS Working Paper : academic research 06-A012, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  10. Rui Baptista & Murat Karaöz, 2011. "Turbulence in growing and declining industries," Small Business Economics, Springer, vol. 36(3), pages 249-270, April.
  11. Corchon, Luis C. & Fradera, Isabel, 2002. "Comparative statics in Cournot free entry equilibrium," Mathematical Social Sciences, Elsevier, vol. 44(2), pages 155-168, November.
  12. Pei-Chou Lin & Deng-Shing Huang, 2008. "Technological Regimes and Firm Survival: Evidence Across Sectors and Over Time," Small Business Economics, Springer, vol. 30(2), pages 175-186, February.
  13. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2002. "The Post-entry Size Adjustment of New small Firms," LEM Papers Series 2002/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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