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Entry and market selection of firms: A laboratory study

  • Brandts, Jordi
  • Giritligil, Ayça Ebru

We study how markets adjust to the entry of new firms under different conditions. Two incumbents face entry by three other firms. When firms' costs are equal, entry always leads consumer surplus and profits to their equilibrium levels. When entrants are more efficient than incumbents, entry leads consumer surplus to equilibrium. With cost asymmetries, market behavior is satisfactory from the consumers' standpoint but does not yield adequate signals to other potential entrants. Simultaneous entry is in the short run more favorable to consumers than sequential entry. A longer incumbency phase favors consumers after entry.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 68 (2008)
Issue (Month): 3-4 (December)
Pages: 593-612

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Handle: RePEc:eee:jeborg:v:68:y:2008:i:3-4:p:593-612
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Abbink, Klaus & Brandts, Jordi & McDaniel, Tanga, 2003. "Asymmetric Demand Information in Uniform and Discriminatory Call Auctions: An Experimental Analysis Motivated by Electricity Markets," Journal of Regulatory Economics, Springer, vol. 23(2), pages 125-44, March.
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  5. Plott, Charles R. & Salmon, Timothy C., 2004. "The simultaneous, ascending auction: dynamics of price adjustment in experiments and in the UK3G spectrum auction," Journal of Economic Behavior & Organization, Elsevier, vol. 53(3), pages 353-383, March.
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  8. Roberts, Mark J & Tybout, James R, 1997. "Producer Turnover and Productivity Growth in Developing Countries," World Bank Research Observer, World Bank Group, vol. 12(1), pages 1-18, February.
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  10. Jordi Brandts & Paul Pezanis-Christou & Arthur Schram, 2003. "Competition with Forward Contracts: A Laboratory Analysis Motivated by Electricity Market Design," UFAE and IAE Working Papers 581.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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  22. Jordi Brandts & Antonio Cabrales & Gary Charness, 2007. "Forward induction and entry deterrence: an experiment," Economic Theory, Springer, vol. 33(1), pages 183-209, October.
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