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Stackelberg leadership with product differentiation and endogenous entry: some comparative static and limiting results

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  • Krešimir Žigić

Abstract

Allowing for endogenous entry in the traditional Stackelberg setup with product differentiation, leads to reverting of the standard comparative static and limiting results. Unlike in the standard Stackelberg setup with barriers to entry, the leader's profit increases when the differentiation becomes lower. The reason is that competition becomes tougher when products become more alike, and consequently, fewer firms enter in equilibrium. On the other hand, increasing product differentiation towards its limit results in number of entrants tending to infinity and for very large market, the profit of the leader approaches zero. Thus market structure approaches monopolistic competition, rather than the standard monopoly outcome that occurs with exogenous number of followers.
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  • Krešimir Žigić, 2012. "Stackelberg leadership with product differentiation and endogenous entry: some comparative static and limiting results," Journal of Economics, Springer, vol. 106(3), pages 221-232, July.
    • Handle: RePEc:kap:jeczfn:v:106:y:2012:i:3:p:221-232
    DOI: 10.1007/s00712-011-0246-4
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    References listed on IDEAS

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    Cited by:

    1. Hiroaki Ino & Akira Miyaoka, 2016. "Government-induced Production Commitment in the Open Economy," Discussion Paper Series 142, School of Economics, Kwansei Gakuin University, revised May 2016.
    2. Tai-Liang Chen & Yuxiang Zou, 2022. "Product differentiation, privatization commitment and profitability comparisons," Journal of Economics, Springer, vol. 136(1), pages 1-24, June.
    3. Federico Etro, 2014. "Some thoughts on the Sutton approach," Journal of Economics, Springer, vol. 112(2), pages 99-113, June.

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    More about this item

    Keywords

    Stackelberg leadership; Product differentiation; Endogenous entry; L1; D43;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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