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Profit Raising Entry

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  • Arijit Mukherjee
  • Laixun Zhao

Abstract

Common wisdom suggests that entry reduces profits of the incumbent firms. On the contrary, we show that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, entry may benefit the incumbents who are relatively cost efficient while it always hurts the cost inefficient incumbents. However, the outputs of all incumbents may be higher under entry.

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Bibliographic Info

Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 08/01.

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Handle: RePEc:not:notecp:08/01

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/
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Keywords: Entry; Profit; Stackelberg Competition;

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References

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  1. Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics.
  2. Spulber, Daniel F, 1981. "Capacity, Output, and Sequential Entry," American Economic Review, American Economic Association, vol. 71(3), pages 503-14, June.
  3. A. Mukherjee & U. Broll & S. Mukherjee, 2008. "Unionized labor market and licensing by a monopolist," Journal of Economics, Springer, vol. 93(1), pages 59-79, February.
  4. Basu, Kaushik & Singh, Nirvikar, 1990. "Entry-Deterrence in Stackelberg Perfect Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 61-71, February.
  5. Ruffin, R J, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 493-502, October.
  6. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
  7. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
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Cited by:
  1. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, 09.

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