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Stackelberg competition with endogenous entry

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Author Info
Federico Etro () (Department of Economics, University of Milan-Bicocca)

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Abstract

This paper analyzes market structures where leaders have a first mover advantage and entry by the followers is endogenous. The strategy of the leaders is always more aggressive than the strategy of the followers independently from strategic substitutability or complementarity. Under quantity competition, the leader produces more than any other firm and I determine the conditions for entry deterrence to be optimal (high substitutability and constant or decreasing marginal costs). Under price competition, the leader sets a lower price than each follower, just the opposite than with an exogenous number of firms. In contests the leader invests more than each follower. In all these cases a leadership improves the allocation of resources compared to the Nash equilibrium with endogenous entry.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper121.pdf
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File Function: First version, 2007
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Publisher Info
Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 121.

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Length: 36 pages
Date of creation: 2007
Date of revision: 2007
Handle: RePEc:mib:wpaper:121

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Related research
Keywords: Stackelberg Competition; Leadership; Free Entry;

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Paul S. Segerstrom, 2007. "Intel Economics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 247-280, 02. [Downloadable!] (restricted)
    Other versions:
  2. Rabah Amir, 2000. "On the Effects of Entry in Cournot Markets," Econometric Society World Congress 2000 Contributed Papers 1475, Econometric Society. [Downloadable!]
    Other versions:
  3. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February. [Downloadable!] (restricted)
  4. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04. [Downloadable!] (restricted)
  5. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215. [Downloadable!] (restricted)
  6. Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 127-135, March. [Downloadable!] (restricted)
  7. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring. [Downloadable!] (restricted)
  8. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne. [Downloadable!]
  9. TESORIERE, Antonio, 2006. "Endogenous timing with free entry," CORE Discussion Papers 2006093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  10. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August. [Downloadable!] (restricted)
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  11. Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October. [Downloadable!] (restricted)
  12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  13. Federico Etro, 2006. "Aggressive Leaders," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 146-154, Spring.
  14. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September. [Downloadable!] (restricted)
  15. Gilbert, Richard & Vives, Xavier, 1986. "Entry Deterrence and the Free Rider Problem," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 71-83, January. [Downloadable!] (restricted)
  16. Anderson, Simon P & Engers, Maxim, 1994. "Strategic Investment and Timing of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 833-53, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Attila Tasnádi, 2009. "Quantity-setting games with a dominant firm," EERI Research Paper Series EERI_RP_2009_25, Economics and Econometrics Research Institute (EERI). [Downloadable!]
    Other versions:
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