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Market Structure and Entry: Where's the Beef?

  • Otto Toivanen

    ()

    (HECER, University of Helsinki)

  • Michael Waterson

    ()

    (University of Warwick)

We study the effects of market structure on entry using data from the U.K. fast food (counter-service burger) industry over the years 1991--1995, for which the market can be characterized as a duopoly. We use both reduced-form estimations and a structural model, controlling for market-specific time-invariant unobservables. For both firms, we find that market structure matters greatly. Specifically, rival presence increases the probability of entry by increasing expected market size, whereas variable profits per customer are increasing in the number of own outlets. Our results suggest the presence of product differentiation, firm learning, and market power.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 3 (Autumn)
Pages: 680-699

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Handle: RePEc:rje:randje:v:36:y:2005:3:p:680-699
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