Empirical analysis of markets with free and restricted entry
Empirical entry models provide a fruitful framework to analyze many interesting questions in Industrial Organization. We show how empirical models of free entry can be extended to allow for various kinds of entry restrictions. We first consider a model of regulated entry and a model of monopoly or coordinated entry as alternatives to the free entry model. We then introduce a model that combines elements of both free and coordinated entry. This model describes how an upstream firm may find it optimal to restrict dowstream entry in some markets while allowing for free entry in other markets. The discussion shows how uncovering fixed costs from these alternative entry models is parallel to uncovering marginal costs from alternative oligopoly models of pricing or output behavior. To allow for clear comparisons, we focus on market-level entry models.
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