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Profit Raising Entry

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  • Arijit Mukherjee
  • Laixun Zhao

Abstract

Common wisdom suggests that entry reduces profits of the incumbent firms. On the contrary, we show that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, entry may benefit the incumbents who are relatively cost efficient while it always hurts the cost inefficient incumbents. However, the outputs of all incumbents may be higher under entry.

Suggested Citation

  • Arijit Mukherjee & Laixun Zhao, "undated". "Profit Raising Entry," Discussion Papers 08/01, University of Nottingham, School of Economics.
  • Handle: RePEc:not:notecp:08/01
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    File URL: http://www.nottingham.ac.uk/economics/documents/discussion-papers/08-01.pdf
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    References listed on IDEAS

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    1. Martin, Stephen, 2001. "Industrial Organization: A European Perspective," OUP Catalogue, Oxford University Press, number 9780198297284.
    2. Rajeev K. Tyagi, 1999. "On the Effects of Downstream Entry," Management Science, INFORMS, vol. 45(1), pages 59-73, January.
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    6. Naylor, Robin, 2002. "The Effects Of Entry In Bilateral Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 638, University of Warwick, Department of Economics.
    7. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    8. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    9. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    10. George, Ken & Jacquemin, Alexis, 1992. "Dominant Firms and Mergers," Economic Journal, Royal Economic Society, vol. 102(410), pages 148-157, January.
    11. Basu, Kaushik & Singh, Nirvikar, 1990. "Entry-Deterrence in Stackelberg Perfect Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 61-71, February.
    12. R. J. Ruffin, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Oxford University Press, vol. 38(4), pages 493-502.
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    Cited by:

    1. Naylor, Robin & Soegaard, Christian Author-workplace-Name University of Warwick, 2018. "The Effects of Entry in Oligopolistic Trade with Bargained Input Prices," The Warwick Economics Research Paper Series (TWERPS) 1148, University of Warwick, Department of Economics.
    2. Junichiro Ishida & Toshihiro Matsumura & Noriaki Matsushima, 2011. "Market Competition, R&D And Firm Profits In Asymmetric Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 484-505, September.

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    Keywords

    Entry; Profit; Stackelberg Competition;

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