Weak entrants are welcome
This paper investigates the decision problem of an incumbent firm confronted by both a weak and a strong entrant in a differentiated market. Suppose that the incumbent can deter entry of the weak firm, but cannot deter entry of the strong firm by itself. Then the incumbent may allow entry of the weak firm and use it to alter the strong firm's entry decision. The present paper formalizes this idea, and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade loberalization. The idea also expalins why a dominant firm lets fringe firms be in the market.
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Cahiers de recherche
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Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
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- Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
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"Product Line Rivalry,"
519, Queen's University, Department of Economics.
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