This paper argues that the efficiency distribution of players in a game determines how aggressively these players interact. We formalize the idea of balance of power: players fight very inefficient players but play softly versus equally (or more) efficient players. This theory of conduct predicts that entry by new /rms leads to a less aggressive outcome if it creates a balance of power. A balance of power is created if more players get technologies that are close to the most efficient technology. Using a related argument, we show that an increase in entry costs can lead to more aggressive outcomes.
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
104.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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Deneckere, Raymond J & Kovenock, Dan, 1992.
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[Downloadable!] (restricted)
Other versions:
Raymond Deneckere & Dan Kovenock, 1988.
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773, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Schmalensee, Richard, 1985.
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[Downloadable!] (restricted)
Other versions:
Schmalensee, Richard., 1984.
"Do markets differ much?,"
Working papers
1531-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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