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Endogenous Entry and Antitrust Policy

Author

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  • Federico Etro

    () (Department of Economics, University of Milan-Bicocca)

Abstract

This article derives antitrust implications for markets where entry can be regarded as endogenous (contrary to most analysis within the post-Chicago tradition). Many applications concern issues of abuse of dominance. Endogenous entry requires a wide revision of our understanding of the role of incumbents in pricing, producing in the presence of network externalities and multi-sided markets, bundling products, price discriminating and delegating to retailers through vertical restraints: when entry is endogenous, leaders adopt aggressive strategies without exclusionary purposes and without affecting welfare negatively. Endogenous entry has also implications for the analysis of mergers (that take place only if create enough cost efficiencies and do not harm consumers), the evaluation of collusive cartels (that are unfeasible in markets where entry is endogenous) and state aids for exporting firms (which are always unilaterally optimal for international markets with free entry). The spirit of the policy recommendations of the Chicago school is broadly supported by our analysis in a solid game-theoretic framework.

Suggested Citation

  • Federico Etro, 2007. "Endogenous Entry and Antitrust Policy," Working Papers 122, University of Milano-Bicocca, Department of Economics, revised 2007.
  • Handle: RePEc:mib:wpaper:122
    as

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    File URL: http://dems.unimib.it/repec/pdf/mibwpaper122.pdf
    File Function: First version, 2007
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    References listed on IDEAS

    as
    1. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    2. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
    3. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    4. Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 127-135, March.
    5. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
    6. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, March.
    7. Rabah Amir & Val E. Lambson, 2000. "On the Effects of Entry in Cournot Markets," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 235-254.
    8. Anderson, Simon P & Engers, Maxim, 1994. "Strategic Investment and Timing of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 833-853, November.
    9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    10. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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    12. Paul S. Segerstrom, 2007. "Intel Economics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 247-280, February.
    13. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
    14. W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, January.
    15. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
    16. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    17. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
    18. TESORIERE, Antonio, 2006. "Endogenous timing with free entry," CORE Discussion Papers 2006093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
    20. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
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    More about this item

    Keywords

    Antitrust; Endogenous entry; Leadership; Chicago school;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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