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Stackelberg Competition with Endogenous Entry

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  • Federico Etro

Abstract

I characterise endogenous market structures where leaders have a first‐mover advantage and entry is endogenous. Leaders are always more aggressive than the followers, independently from strategic substitutability or complementarity. Under quantity competition, leaders produce more than any follower and I determine the conditions for entry‐deterrence (high substitutability and non‐increasing marginal costs). Under price competition, leaders set lower prices than the followers (the opposite than with an exogenous number of firms). In contests, leaders invest more than each follower. In all these cases a leadership improves the allocation of resources compared to the Nash equilibrium with endogenous entry.

Suggested Citation

  • Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    • Handle: RePEc:wly:econjl:v:118:y:2008:i:532:p:1670-1697
    DOI: 10.1111/j.1468-0297.2008.02185.x
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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