PROFIT RAISING ENTRY

Common wisdom suggests that entry reduces profits of incumbent firms. On the contrary, we demonstrate that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones. And...

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Bibliographic Details
Published in:The Journal of industrial economics 2017-03, Vol.65 (1), p.214-214
Main Authors: Mukherjee, Arijit, Zhao, Laixun
Format: Article
Language:English
Subjects:
Benefit cost analysis
Cost analysis
Notes on the "Journal of Industrial Economics" Website
Profits
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Summary:Common wisdom suggests that entry reduces profits of incumbent firms. On the contrary, we demonstrate that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones. And the total outputs of all incumbents may be higher under entry.
ISSN:0022-1821
1467-6451
DOI:10.1111/joie.12109