entry deterrence externalities and relative firm size most models of entry deterrence through preemptive investment consider either a monopolist or a cartel this suppresses an important question how does threat of entry affect capital choices of several noncolluding incumbents there are two opposing forces expanding capital to deter entry generates a public good to other incumbents but also increases the expanding firm s share of market output we address the trade off in a model of sequential entry with foresight where in the first stage capital choices are made sequentially and in the second stage the output interaction is cournot or competitive under competitive interaction we prove that the first entrant either admits all other potential entrants or deters all it never allows partial entry under cournot we find using simultaneous some rather surprising patterns easier entry can make the first entrant s capital larger or smaller the first entrant can be smaller than the second but is never less profitable the first entrant s profit is always reduced by increased entry threat but profits of other entrants can be increased

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

rationing can backfire a ban restricting each car from driving on a specified weekday is found to have increased total driving in mexico city because of the ban cars effectively represent driving permits and some households have bought an additional car and increased their driving greater use of old cars congestion effects and increased weekend driving may also have contributed to the disappointing results the ban has high welfare costs and does not deliver the intended benefits of reduced driving quite the contrary the experience provides an interesting lesson in applied welfare economics theory indicates that this is a costly way of reducing traffic and pollution but the finding that the strategy is counterproductive could be made only with applied quantitative analysis

quality competition and threat of entry in duopoly abstract threat of entry sequential entry and cost of production are taken into account in a duopoly game in quality within the vertical product differentiation framework a multi stage perfect equilibrium solution is shown to exist and is fully characterized

spatial equilibrium with entry this paper examines spatial equilibrium in political competition when established parties choose their platforms competitively while rationally anticipating entry of a vote maximizing third party the resulting equilibrium is substantially different from the hotelling median equilibrium established parties are spatially separated and third parties will generally lose the election this provides one theoretical explanation for the stability of two party systems namely that non cooperative behavior between established parties can effectively prevent third parties from winning

strategic investment in an industry with a competitive product market this paper explores the scope for and effect of strategic behaviour by firms in an industry where the product market is competitive in the usual sense that firms are effectively price takers traditionally the literature on imperfect competition has concentrated on the product market employing the notions of the cournot equilibrium or monopolistic competition the model presented shows that even if firms are unable to obtain any such market power in the product market they can still influence the market outcome through investment behaviour which determines their actual cost structure the ability of firms to thus influence the market outcome is directly related to their market share this is a result which is not only of theoretical interest it is sometimes argued that for some industries concentration does not lead to welfare loss because the mnarket may be competitive even with only a few producers see fisher et al i983 pp 24 25 for the u s computer industry and i b m the message of this paper is that even in such competitive industries concentration still matters since firms can still behave strategically with factors such as investment and r d this paper considers a model of strategic investment in the context of a two stage dynamic equilibrium with two factors of production capital and labour in the first strategic stage firms choose their capital stocks in the second market stage the capital stocks are fixed and a competitive equilibrium occurs the two stages of the model can be seen as capturing the distinction between the long run and the short run the equilibrium rests on the reasonable assumption that the capital decisions of firms are irreversible in the market stage we are thus implicitly assuming that there is no rental market for capital in the competitive market stage the price equates supply with demand in essence the choice of the capital stock in the strategic stage determines the supply function that the firm has in the market stage thus firms are able to influence the market equilibrium to their favour through their choice of capital stock the resultant equilibrium can be interpreted as a nash equilibrium in supply functions see for example grossman i 98 i dixon i 984a in evaluating the welfare consequences of the model it is necessary to realise that the cost structure of the firm is endogenous the choice of capital

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

stackelberg versus cournot oligopoly equilibrium abstract we compare an m firm cournot model with a hierarchical stackelberg model where m firms choose outputs sequentially the stackelberg equilibrium price is lower so output and total surplus are higher total profits are lower while the first mover in a stackelberg duopoly earns more than a cournot duopolist this is not necessarily true for m 2 we find a surprisingly simple relation which determines whether cournot profit exceeds the stackelberg leader s finally we consider a game with firms choosing whether to reveal their outputs which includes stackelberg and cournot as possible outcomes the equilibrium is stackelberg

energy demand in the transportation sector of mexico abstract this paper report results of an analysis of the demand for energy in the mexican transport sectors focusing on the railroad air transport and motor vehicle modes the approach is an econometric one with emphasis placed on the structure for each mode for two of the modes a two stage approach is employed where in the first stage demands for services from the particular mode are modeled and in the second stage demand is treated as a derived demand from these transport services for the motor vehicle mode gasoline demand is considered as the product of gasoline consumption per vehicle times the total number of vehicles and then these components are related to economic and structural variables diesel demand of motor vehicles is modeled in a more reduced from approach the principal finding is that changes in income play a more important role in affecting energy demand than do changes in energy prices especially in the railroad and air transport sectors for the gasoline and diesel fuel demand in the monitor vehicle sector however price is of substantial importance

on entry exit and coordination with mixed strategies abstract a dynamic entry and exit game is studied where following dixit and shapiro 1986 the economics of strategic planning lexington books pp 63 79 firms play symmetric mixed strategies coordination among entrants improves and creates a tendency for the value of incumbency to increase as the number of incumbent firms increases up to the point of excess capacity this feature implies that when considering mixed strategies the relevant payoffs are not monotonic as the probability of entry increases expected profit for a given firm conditional on entry increases over some initial range it is shown that the payoffs have an interesting dynamic structure which allows the complete characterization of the equilibrium

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

oligopoly limit pricing we expand milgrom and roberts 1982 limit pricing model to allow for multiple incumbents each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent s preentry price we find that incumbents are unable to coordinate deception which results in a separating equilibrium in which preentry prices are not distorted further introducing the refinement of unprejudiced beliefs we show that the no distortion equilibrium is the only refined separating equilibrium plausible pooling equilibria fail to exist or involve downward distortions in preentry prices

free riding in noncooperative entry deterrence with differentiated products 1 introductionthis paper reexamines the phenomenon of free riding in entry deterrence when established firms in an oligopoly are unable to coordinate their entry preventing activities previous authors e g bernheim 1984 gilbert and vives 1986 waldman 1987 1991 appelbaum and weber 1992 have highlighted the public good aspect of noncooperative entry prevention if costly entry deterring actions are successfully undertaken by a proper subset of the incumbents then incumbents outside of that subset cannot be excluded from the benefits of deterred entry it is in this sense that entry deterrence acquires the nature of a public good this observation has prompted previous researchers to raise the free rider question with its associated welfare implications can there occur underinvestment in entry deterrence due to the incentive for each firm to free ride on the others costly entry preventing activities the free rider problem in entry deterrence is first mentioned in the sequential entry model of bernheim 1984 however though bernheim discusses the possibility of free riding in his model the free rider problem is not the main focus of his paper in fact as pointed out by waldman 1987 p 309 footnote 2 the author s discussion of the role of the free rider problem is somewhat vague as regards whether bernheim feels the free rider problem would ever be important in a noncooperative entry deterrence setting 1gilbert and vives 1986 is the first paper in which the underinvestment issue is explicitly addressed the authors define underinvestment in entry deterrence to be associated with one or more of the following a incumbents total profits are higher preventing than allowing entry but the unique industry equilibrium allows entry b either entry prevention or entry may be an industry equilibrium but incumbents profits are higher when entry is prevented c an established monopoly or colluding incumbents prevents entry in more situations than an established noncooperating oligopoly p 77 label a b and c as underinvestment of type 1 2 and 3 respectively gilbert and vives g v go on to show that in none of these respects is there underinvestment in their quantity setting homogeneous product model on the contrary they demonstrate a strong possibility of overinvestment g v consider a situation where symmetric noncooperative incumbents with constant marginal costs of production make credible commitments to outputs in the preentry stage 2 the entrant incurs a fixed entry cost if it enters the industry and makes its entry and output decision after observing the incumbents output choices consequently there exists a limit output which if jointly produced by the oligopoly deters entry 3 g v find that entry is prevented when limit outputs are small while entry is allowed for larger limit outputs for limit outputs in an intermediate range both allowing entry and preventing entry are equilibria they prove that in this intermediate range where both entry accommodating and entry preventing equilibria coexist the unique entry equilibrium pareto dominates every deterrence equilibrium in other words compared with any deterrence equilibrium there is typically a continuum of such equilibria the accommodation equilibrium yields strictly higher profits to every incumbent hence if the industry settles on an entry preventing equilibrium the implication is that overinvestment exists because by jointly reducing incumbents outputs and allowing entry every incumbent can be made better off this paper introduces product differentiation into the g v model and shows that sufficiently large amounts of product differentiation can generate underinvestment in entry prevention the intuition is straightforward consider an incumbent s profit in any entry deterring equilibrium where exactly the limit output is produced by the oligopoly

entry deterrence and the free rider problem the public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant although incumbent firms act noncooperatively underinvestment in entry deterrence does not occur and in fact incumbents may find themselves in a pareto dominated arrangement in terms of profits by preventing entry

quantity leadership and social inefficiency a game of simultaneous free entry and sequential output choices is analyzed firms enter simultaneously in stage 1 by paying a fixed cost and they choose output levels sequentially in subsequent stages at the subgame perfect equilibrium of the game the production level of a firm is decreasing with the order of the firm in the decision making the firm that is the last to choose output produces the same amount as a typical firm in the standard symmetric simultaneous moves cournot game moreover industry output and market price are identical in the sequential and the symmetric cournot games it follows that in the sequential game there are fewer active firms and higher total surplus than in the standard symmetric cournot game strategic asymmetry results in higher concentration and higher total surplus without an increase in price

the mobility of labor and capital a study in international investment and labor flow list of tables acknowledgements introduction 1 foreign investment a neglected variable 2 the use of foreign workers 3 the new immigration 4 the globalization of production implications for labor migration 5 the rise of global cities and the new labor demand 6 the reconcentration of capital in the united states a new investment zone conclusion notes references index

a theory of market structure with sequential entry this article sets out a theory of market structure with sequential entry we characterize the perfect nash equilibrium to the entry game in several propositions first equilibria never involve excess capacity second a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically i e with no further entry third the equilibrium number of firms is the smallest number that can deter entry fourth aggregate output in equilibrium is no smaller than the limit output we calculate some explicit solutions to the model and examine comparative static properties

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

weak entrants are welcome abstract this paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market suppose that the incumbent can deter entry of the weak firm but cannot deter entry of the strong firm by itself then the incumbent may allow entry of the weak firm and use it to alter the strong firm s entry decision the present paper formalizes this idea and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization the idea also explains why a dominant firm lets fringe firms be in the market

limit qualities and entry deterrence in this article we investigate how the interplay of competition among incumbents and the magnitude of a potential entrant s setup cost determines the configuration of the array of products to be offered in a perfect nash equilibrium we show that incumbents can use limit qualities to deter entry we also demonstrate that rivalry among incumbents may lead to excessive entry deterrence our analysis generates predictions about the correlation between the degree of product differentiation and the size of the entrant s setup costs

vertical product differentiation with entry abstract this paper examines the non cooperative behaviour of established firms that compete in product quality and prices while foreseeing the effects of their rivalry on the decisions made by the later entrants we prove an existence and uniqueness of the equilibrium and show that the dominant firms engage in maximal product differentiation i e select the highest and lowest technologically feasible qualities later entrant however always selects an intermediate quality moreover we show that the equilibrium configuration is identical to that generated by perfect foresight equilibrium in a model of sequential entry furthermore the profits earned by each firm are ranked in the same order as the qualities implifying that the later entrant despite being the last mover ends up with higher profits and larger market share than one of the incumbents

endogenous timing with infinitely many firms abstract a model with constant marginal costs is considered where firms choose first a period for production and then the amount to produce when competing in the market according to the resulting timing decisions multiple equilibria arise allowing for infinitely many industry output configurations encompassing one limit output dominant firm and the cournot equilibrium with free entry as extreme cases at each of these equilibria a firm produces a positive amount only if this firm commits to produce at period one both stackelberg and cournot like outcomes are sustainable as equilibria however when the number of leaders is given production at subsequent periods is always prevented and industry output is sometimes larger than the entry preventing level

strategic deterrence of sequential entry into an industry industrial entry deterrence is typically studied in a setting where an established firm or firms confront and attempt to deter a single potential competitor during the evolution of most industries however a sequence of firms enters or attempts to enter at distinct points in time consideration of issues arising from sequential entry fundamentally alters the qualitative nature of the deterrence decision undertaken by incumbent firms within a sequential setting counterintuitive behavior may be observed specifically numerous government policies designed to decrease industrial concentration penalties for anticompetitive practices subsidization of entry consent decrees restructuring industries may have the opposite effect

the geographical formation of international management centres in europe international management centres are based on production control functions control functions comprise headquarters as bases of operation and beachheads co ordinating foreign branches and subsidiaries bases of operations and beachheads are sustained by advanced business services financial and real estate services and corporate services these activities make up an economic formation transport communication facilities internationally oriented office locations and specific amenities enable the formation to function smoothly the spatial and social structures of many city regions are strongly affected by the development of these international management centres segmentation processes in the housing and labour markets can be related to these formations of management activities

preemptive investment toehold entry and the mimicking principle this article explores the ability offirms to successfully enter against an initial monopolist by pursuing toehold entry sinking entry costs early and planning to produce only later we endow the incumbent with strongfirst mover advantages for example capital is the only input and is completely sunk and in each period the incumbent invests before entrants nevertheless the incumbent s profit can easily be negative if it tries to deter all entry when the market is growing the incumbent may need prohibitive capital in place early on because once toehold entry has occurred the incumbent s planned capital expansion might no longer be rational surprisingly even if market conditions remain stationary the incumbent may still allow some entry in the model some firms are always deterred showing that several firms can deter others more effectively than can a singlefirm the difference arises because onefirm cannot commit to mimicking the aggregate investment path that several independent firms would choose this mimicking principle offers a general perspective for understanding when a monopolist finds deterrence optimal

rising metropoli the geography of mergers and acquisitions in germany high levels of mergers and acquisitions m as were a characteristic of the global economy in the 1990s the overall effects of m as on economic welfare and their spatial implications however remain a profoundly neglected topic using three standardised indices representing the relative quantity of take overs in each german regierungsbezirk the paper demonstrates that the recent wave of m as has resulted in a major concentration of firms and economic activity in the main german metropoli the paper then turns to a study of the flows of m a transactions by means of regression analysis it identifies the main drivers of the geographical concentration of firms to be indicators of the general level of agglomeration i e regional gdp and population and the concentration of political power in the region the results also indicate that investment in r d the general level of education or unemployment when considered in combination with agglomeration indicators play a negligible role in determining m a f

the pro competitive effect of higher entry costs abstract in an oligopolistic market with vertical product differentiation incumbent firms use sophisticated entry deterring and accommodating strategies when entry costs are low firms accommodate entry for higher entry costs incumbent firms deter entry by producing close substitutes the current paper shows that higher entry costs can lead to more intense competition meaning lower price cost margins and lower industry profits it also shows that total surplus increases and all consumers are strictly better off

competing to be regional centres a multi agency multi locational perspective summary this paper recognises that the economic fabric of cities has to be considered as a dynamic outcome of aggregate outcomes of decisions by different agents made with reference to other competing locations drawing on interview material from a multi industry and multi city sample as well as company listings compiled in three countries this paper illustrates the location dynamics of regional functions of multinational companies and the consequences these investments have on cities the strategic actions by these e rms to match activity to place attributes are examined in relation to efforts by governments to attract regional functions

on hierarchical spatial competition in this paper we consider a hierarchical model of spatial electoral competition with two dominant players incumbents and one entrant the incumbents engage in a non cooperative game against each other and act as stackelberg leaders with respect to a vote maximizing entrant we prove that the equilibrium of this game called a hierarchical equilibrium exists and is unique for an arbitrary single peaked distribution of voters ideal points moreover we fully characterize the set of equilibrium strategies and show its equivalence to the set of strategies generated by a perfect foresight equilibrium most of the recently developed models of entry in oligopolistic markets and the theory of political competition deal with the case of dominant firms or parties which face a threat of potential entry these models possess a number of features on which they may be compared and contrasted the most important of these features are the ways in which the existing parties or firms compete against each other for votes or profits and types of expectations the incumbents have about the responses of potential entrants to changes in their decisions in most of the cases an electoral or oligopolistic competition is represented by some type of a non cooperative game played by parties or firms in this paper we also consider a non cooperative model of electoral race where the established parties incumbents compete against each other by offering positions ideologies to the population of voters given the profile of voters preferences over the space of ideologies or issue space each of the established parties attempts to maximize its vote share in making their choices the incumbents however anticipate that a new party an entrant will join the electoral race consistent with the other parties objectives the entrant is assumed to maximize its share of voters while taking the incumbents choices as given the resulting non cooperative game possesses therefore a structural hierarchy the established parties behave as nash players with respect to each other whereas acting as stackelberg leaders with respect to the entrant and correctly anticipating its vote maximizing response to their choices in the issue space the main purpose of this paper is to study the properties of the game we described and in particular to characterize its equilibrium which we will call hierarchical equilibrium naturally some assumptions are needed in order to guarantee the existence of the equilibrium we assume that there are two established parties the issue space i is the uni dimensional interval all voters have symmetric single peaked peaked preferences over i and the distribution of the voters ideal points is represented by a quasi concave continuous density function under these rather mild assumptions we are able to prove the existence and uniqueness of the hierarchical equilibrium and to completely

stackelberg competition with endogenous entry 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 this article studies endogenous market structures where a firm has a first mover advantage in the sense of stackelberg 1934 on the other firms and entry in the market is endogenous the article characterises the equilibrium of these endo genous market structures and provides welfare analysis for some of the applications these market structures emerge in many sectors which are substantially competitive a fringe of firms is ready to enter whenever there is a profitable opportunity but where some incumbent firms have a competitive advantage over the followers because of technological historical or legal reasons or just because entry was not possible at an earlier stage and choose their strategies before them 1 while symmetric models of strategic interactions have been widely studied in the presence of endogenous entry in a marshallian tradition 2 traditional models with incumbent firms facing a competitive fringe of entrants have been mostly limited to the analysis of markets with homogeneous goods and entry deterrence for instance in the theories of limit pricing and of contestable markets baumol et al 1982 more recently vives 1988 has analysed games with sequential entry of multiple firms but without endogenising the entry process see also anderson and engers 1992 1994

sustainable collusion in oligopoly with free entry we investigate the stability of collusion in a market where firms cannot prevent entry in a symmetric homogeneous oligopoly there are collusive long run equilibria under which the colluders obtain positive economic rents while they do not prevent entry of firms up to a maximum equal to the largest number of firms sustainable at a single shot equilibrium the collusion is not generous to new entrants their profits are a little better than those associated with the discounted single shot equilibrium eventually entrants obtain profits equal to the incumbent firms we extend the results to asymmetric differentiated oligopolies

a presumptive pigovian tax complementing regulation to mimic an emissions fee if regulations are used to make cars and fuels cleaner should gasoline taxes be used to manage demand for trips that pollute anaysis of a well composed program for mexico city indicates that the emission reductions would cost 24 percent more if a tax on gasoline was not introduced a simple analytical framework is developed to analyze the use of abatement requirements to make cars cleaner and a gasoline tax to economize on the use of cars the two instruments should be combined to mimic the incentives that would have beeen provided by an emissions fee thus cleaner cars and fewer trips are analogous to competing suppliers of emission reductions the planner should buy from both so that marginal costs are equal applying that rule the marginal cost of emission reductions is simply the gasoline tax rate divided by emissions per liter