Short term entry barriers may be good for long term competition
AbstractEntry barriers encourage competition “for” the market as opposed to “in” the market. Efficient entrants use penetrating strategies while inefficient incumbents harvest the market before leaving. These phenomenon are explored in an infinite horizon game in which history matters. Under some circumstances, higher entry barriers induce entry of efficient firms while lower entry barriers would not. This comes from the expected benefit of future rents. Social welfare may be enhanced as well. This result suggests that a rule of reason should be applied and that entry barriers should not be considered per se anticompetitive.
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Date of creation: Jan 2008
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CEPR Discussion Papers
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