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The top-dog and the lean and hungry look strategies in endogenous entry

Listed author(s):
  • Cato, Susumu
  • Oki, Ryoko

This paper examines the strategic commitment behavior of heterogeneous leaders in an endogenous market structure. We demonstrate that each leader's investment level is independent of the other leaders' characters. Furthermore, we show that a leader over-invests (resp. under-invests) when an investment increases (resp. decreases) the leader's marginal profitability. Such an investment always makes leaders employ aggressive strategies in the competition relative to those in a no-commitment case. This result implies that aggressiveness of leaders is a robust observation in an endogenous market structure.

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File URL: http://www.sciencedirect.com/science/article/pii/S0264999311001763
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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 6 ()
Pages: 2776-2782

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2776-2782
DOI: 10.1016/j.econmod.2011.07.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Federico Etro, 2010. "Endogenous market structures and antitrust policy," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(1), pages 9-45, March.
  2. Rabah Amir & Val E. Lambson, 1998. "On the Effects of Entry in Cournot Markets," CIE Discussion Papers 1998-06, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  3. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
  4. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
  6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  7. Federico Etro, 2010. "Endogenous market structures and the optimal financial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1333-1352, November.
  8. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-1237, December.
  9. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  10. Hiroaki Ino & Toshihiro Matsumura, 2009. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," Discussion Paper Series 48, School of Economics, Kwansei Gakuin University, revised Oct 2009.
  11. Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1993. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 43-59, January.
  12. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
  13. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x.
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