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

the competitive effects of partial equity interests and joint ventures abstract antitrust authorities should consider the trade off between enhanced efficiency and reduced competition in cases of partial ownership this paper examines the competitive effects side of that trade off in the context of a modified cournot model we show that in markets where entry is difficult partial ownership arrangements could result in less output and higher prices than otherwise even if the ownership shares are relatively small these effects arise solely because these arrangements link the fortunes of actual or potential competitors producing a positive correlation among their profits in this sense the effects are purely structural they arise not because of increased opportunities for collusion or changes in the concentration of control but because the linking of profits reduces each firm s incentive to compete since these links internalize free rider problems associated with policing collusion and investing in entry deterrence however they could also enhance cartel stability and profitability

endogenous sequential entry in a spatial model revisited abstract this article reexamines sequential entry of firms in a hotelling model of spatial product differentiation as analyzed by neven neven d j 1987 endogenous sequential entry in a spatial model international journal of industrial organization 5 419 434 i show that the pattern of locations is generally asymmetric in the case of a duopoly profits are non monotonic in market size even in the range where the number of firms does not change the firm that bears the burden of entry deterrence gains from lower barriers to entry as long as entry deterrence is possible equilibrium profits of all firms may be larger in situations in which more firms are active

advertising competition under consumer inertia we construct a multistage game theoretic model of advertising and price competition in a differentiated products duopoly in which proportions of consumers exhibit latent inertia in favor of repeat purchase advertising simultaneously plays the dual role in reducing such inertia through awareness and enhancing perceived brand value persuasion we derive the advertising price cross effects and provide a theoretical reconciliation of the longstanding debate in the marketing literature regarding the impact of advertising on price sensitivity we characterize the nature of equilibria under symmetry and show that when a large proportion of consumers exhibit inertial tendencies then a multiplicity of equilibria exists marketing implications and comparative statics are discussed numerical simulations for asymmetric firms are presented wherein we show that advertising is not a useful competitive tool for small firms however advertising spending by the large firm provides a halo effect for the average prices in the category which has a positive externality on the small firm s profits in the absence of the small brand advertising larger brand shares encourage firms to allocate higher expenditures on advertising to enhance the perceived value of their brand which in turn shore up the average prices in the industry from which all firms benefit

challenges of existing in a market as a small low quality producer this paper explores the strategy of a small firm entering a monopolist s market thereby creating a duopoly market the small firm avoids competing with the larger incumbent firm by producing a lower quality product at a lower price the model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices qualities and profits although the strategy might allow the firm to enter and earn a profit the market conditions may make this position much less desirable to that of the large firm for several reasons in the case explored here where tastes for the product are uniformly distributed the small firm s profit is about six percent of that of the larger firm the smaller firm is more severely threatened by the entrance of a third firm furthermore even if the smaller firm can cut costs its position is not well suited for exploiting such increases in efficiencies

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

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

the efficiency of indirect taxes under imperfect competition abstract this paper considers the relative efficiency of ad valorem and unit taxes in imperfectly competitive markets we provide a simple proof that ad valorem taxes are welfare superior to unit taxes in the short run when production costs are identical across firms the proof covers differentiated products and a wide range of market conduct cost asymmetries strengthen the case for ad valorem taxation under cournot competition but unit taxation may be welfare superior under bertrand competition with product differentiation ad valorem taxation is superior with free entry under cournot competition but not necessarily under price competition when consumers value variety

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

price leadership and discrimination in the european car market this paper explains differences in the price of the same good in different markets in the authors model n producers each play the role of stackelberg leader on their own market and there is one market with no domestic producer the authors show that even without demand differences between markets pretax prices will be higher on markets where there are high cost domestic producers and where taxes are low evidence from the european car market based on time series for individual models supports these results furthermore as the model suggests exchange rate changes are not passed through to car prices copyright 1990 by blackwell publishing ltd

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

stackelberg and marshall this paper advocates a generalized n firm stackelberg model as a plausible testable alternative description of oligopoly a pure strategy equilibrium must exist for this model the main result is that efficiency obtains in the limit as the scale of each firm is shrunk relative to demand this is demonstrated for the case of u shaped average cost and also for that of natural monopoly copyright 1990 by american economic association

political extremism in the presence of a free rider problem this paper provides an explanation for the emergence of political extremism in an environment in which a change in re gime requires an investment that benefits more than one player we show that in order to mitigate the effects of free riding players may choose extreme positions further we show that as the free rider problem becomes more severe both parties move to more extreme positions in the same direction

disentangling pioneering cost advantages and disadvantages existing literature discusses a number of possible pioneering cost advantages and disadvantages in this paper we empirically test three different sources of long term pioneering cost advantage experience curve effects preemption of input factors and preemption of ideal market space and three different sources of pioneering cost disadvantage imitation vintage effects and demand orientation we disentangle these sources by breaking total cost of a business unit into three different components purchasing production and selling general and administrative sg a costs and identifying conditions that intensify or reduce the effect of the proposed source using two samples of business units one for consumer goods and one for industrial goods we find support for five of the six sources of pioneering cost advantage and disadvantage in both samples while the advantage due to preemption of ideal market space is limited to the consumer goods sample the unconditional analysis shows a pioneering purchasing cost advantage but even larger pioneering production and sg a cost disadvantages the complexity of our obtained findings suggests that managers need to think carefully about their particular conditions before making assumptions about the cost and therefore profit implications of a pioneering strategy

do after tax returns affect mutual fund inflows abstract this paper explores the relationship between the after tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds previous studies have documented that funds with high pretax returns attract greater inflows this paper presents evidence based on a large sample of retail equity mutual funds over the period 1993 1999 that after tax returns have more explanatory power than pretax returns in explaining inflows in addition funds with large overhangs of unrealized capital gains experience smaller inflows all else equal than funds without such unrealized gains a large capital gain overhang discourages both gross fund inflows and gross outflows but the inflow effect dominates the outflow effect

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

deconstructing the pioneer s advantage examining vintage effects and consumer valuations of quality and variety several studies have demonstrated an order of entry effect on market share suggesting that pioneers outperform later entrants however other research has pointed out the limitations of these studies and found evidence that many pioneers fail or have low market share given this background the purpose of this research is to understand the conditions under which pioneers are more likely and also less likely to have an advantage we propose a game theoretic model that includes important sources of pioneer advantages as well as disadvantages specifically we incorporate a pioneer advantage due to preemption in markets with heterogeneous tastes in addition we incorporate a potential pioneer disadvantage due to technology vintage effects where later entrants utilizing improved technology can have lower costs and higher quality the model allows us to evaluate the extent of vintage effects necessary to overcome a pioneer s advantage key relationships are found between the magnitude of the pioneer advantage or disadvantage and consumer valuations of product attributes e g variety and quality we empirically validate the model with vintage effect data in 36 product categories and measures of consumer valuations of product variety and quality for 12 of these 36 categories the results show that pioneers do better in product categories wherevariety is more important and worse in categories where productquality is more important pioneers in categories with high vintage effects are shown to have lower market shares and higher failure rates similar results appear when analyzing persistence of market leadership over time further validating our model s major implications we also present two case studies that illustrate key elements of the model

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

media legitimation effects in the market for initial public offerings in this study we argue that media provided information affects investors impressions of newly public firms in 225 initial public offerings ipos the volume of mediaprovided information had a negative diminishing relationship with underpricing and a positive diminishing relationship with stock turnover on the first day of trading the relationship between the tenor of media provided information and underpricing increases at a nonlinear rate and decreases similarly for turnover findings provide important evidence that publicly available information not only reflects ipos legitimacy but also adds to their legitimacy and influences investor behavior in the last 20 years an increasing amount of research on markets has been conducted from a social constructionist perspective emphasizing how social structures enhance the flow of useful and credible information that market participants use to reduce the uncertainty of market exchanges e g aldrich fiol 1994 zuckerman 1999 further recent organizational research has begun to stress the influence of information intermediaries such as financial analysts and the media on mar

innovation imitation and social welfare this paper focuses on the impact of competition by imitation more specifically copying for innovative activity and social welfare in part it is a response to recent empirical work 10 12 that has tried to measure the relationship between innovation and imitation costs these papers include a direct call for theoretical modeling that takes explicit account of such cost relationships and we try to answer this challenge specifically we examine the implications for product quality and social welfare when innovators anticipate that a successful product will be copied by rivals obviously previous empirical research is not the only source of interest in these issues the potential effects of imitation on innovative activity have long been both a theoretical and practical concern in recent years a variety of authors have addressed the appropriability issue raised by imitation and its implications for innovative activity 4 7 2 there has also been work on explicit copying i e photocopying 8 11 in the policy arena the protection of product design and intellectual property rights is the focus of much recent actual and proposed u s legislation and a major issue in the uruguay round of trade talks 1 21 our analysis of this topic differs from that of previous work in a number of important respects first we focus explicitly on product as opposed to process innovations second and perhaps even more important we do not restrict the firm s choice to be to innovate or not to innovate instead we allow the innovator to choose what kind or quality of new good to introduce into the market the higher the quality the higher is the development cost third when the innovating firm decides what kind of new product to market it does so under uncertainty about demand the popularity of the new product is not known until after the innovator has chosen the level of quality and sunk its product development costs fourth at the initial time at which the innovator chooses the quality of product to develop it does so with the knowledge that its innovation if it is popular will be copied by later rival entrants finally in direct response to the empirical work mentioned above we explicitly focus on the ratio of imitation to innovation costs our approach yields a number of insights not the least of which is a more precise identification of the potential gains and losses from imitative competition indeed using a quadratic development cost function we explicitly calculate the impact of copying on social welfare this explicit welfare analysis further distinguishes our analysis from most previous work

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

on the contribution of game theory to the study of sovereign debt and default this paper reviews the lessons learned from the application of the tools of game theory to the theoretical study of sovereign debt and default we focus on two main questions first we review answers to the most fundamental question in the theory of sovereign debt given that there is no supranational institution for enforcing the repayment of debts why do countries ever repay their debts second we review theories of the process by which sovereign debts are restructured with a view to answering the following question why does the process of sovereign debt restructuring appear so inefficient the first question raises issues in the design of self enforcing contracts and on the credibility of threats to punish a country in default the second question involves applications of the theory of bargaining in environments where the parties to a bargain cannot commit to honour the terms of the bargain or even commit to enter into negotiations in the first place copyright 2013 oxford university press

sequential lottery contests with multiple participants abstract we apply aggregative games techniques in a novel fashion in the analysis of sequential lottery contests with n players to show that there exists a unique subgame perfect equilibrium in pure strategies

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

forgoing invention to deter entry abstract a monopoly facing potential entry may not want to develop an efficient technology even at zero r d costs such a phenomenon occurs if a new technology is distinct from the existing one so production uncertainty becomes technology specific then the monopoly can reduce the entrant s post entry profit to the point of deterrence by using the existing technology with which the entrant would enter we show that the monopoly develops a new technology when the entrant faces a sufficiently high or low entry cost but forgoes invention when the entry cost is intermediate these results hold both in quantity and price competition

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

no news is bad news sensegiving activities media attention and venture capital funding of new technology organizations a significant body of research has examined how new organizations gain legitimacy and how gaining it affects their subsequent access to resources less attention has been given to the problem of how new organizations attract collective attention although related to legitimation the problem of attracting attention is distinct as attention and evaluation are distinct cognitive processes in this study we examine the allocation of collective attention to new organizations in a system of relationships within which new organizations seek to attract attention through their sensegiving activities the information properties of their sensegiving activities affect the level of attention they receive from different types of media and media attention in turn increases their perceived value potential in the eyes of venture capital investors vcs we examine these relationships in a sample of 398 information technology start ups that have obtained different levels of venture capital funding our results show that new organizations that engage in more intense and diverse sensegiving activities attract higher levels of industry media attention and that these effects are enhanced by the human capital of their founders and leaders diverse sensegiving activities are also associated with higher levels of attention from the general media but only the attention of specialized industry media is positively associated with the level of vc funding obtained these findings extend current research on information intermediation and institutional legitimation by demonstrating that media attention early in the life of new organizations affects how they are valued by a well informed expert audience such as vcs they also contribute to entrepreneurship research on the effects of new organizations strategies on their ability to secure resources and to research on vc funding decisions

stackelberg versus cournot a differential game approach abstract we propose an infinite horizon differential oligopoly game where at each point in time m stackelberg leaders and n m stackelberg followers exploit a common pool renewable resource and sell their harvest in the marketplace at a price that depends on total harvest we derive a feedback generalized stackelberg nash cournot equilibrium a generalization of the feedback stackelberg equilibrium nesting feedback stackelberg and feedback cournot as special cases we proceed with a comparison between the feedback stackelberg and the feedback cournot equilibria and find a number of interesting results in contrast with static oligopoly theory as to the relative efficiency of the two equilibria we show that the cournot equilibrium can be more efficient than the stackelberg equilibrium this holds true in the short run at the steady state and in terms of discounted welfare

a model of agreements in strategic form games abstract because in a strategic form game all the possibilities of communication available to the players must be explicitly listed in the strategy spaces coalitions and coalitional behaviour are not very often taken into account in noncooperative games however it may be desirable especially in applications to separate the basic strategic features of a situation from those strategic features added as a consequence of the possibility of coalitional behaviour we define an equilibrium for the bargaining procedure called by greenberg the theory of solid situations an alternative game theoretic approach cambridge university press cambridge uk 1990 coalitional contingent threat situation we argue that the crucial problem of expectations on the counterdeviations following a deviation can be addressed by defining coalitional strategies and studying the equilibrium of the extended game journal of economic literatureclassification numbers c70 c71

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

stackelberg versus cournot equilibrium we reconsider stackelberg s classical critique of the cournot duopoly in the framework of endogenous timing for two player games for quantity duopoly we provide different sets of minimal conditions directly on the demand and cost functions yielding respectively the simultaneous and the two sequential modes of play while our findings essentially confirm the predominance of the former they also indicate that the latter is natural under some robust but restrictive conditions no extraneous assumptions such as concavity existence or uniqueness of equilibria are needed and the analysis makes crucial use of the basic results from the theory of supermodular games classification numbers b21 c72 d43 l13 c 1999 academic press

noncooperative entry deterrence uncertainty and the free rider problem previous authors who have considered the issue of noncooperative entry deterrence have not found the free rider problem to be a significant factor these authors however have only considered models in which the exact investment needed to deter entry is known with certainty in this paper i add uncertainty to the models investigated by these previous authors and demonstrate that the free rider problem can be significant but is not so in all cases that is for certain types of entry deterring investments the introduction of uncertainty causes the oligopoly to underinvest in entry deterrence however for other types no underinvestment result arises

non cooperative entry deterrence in license auctions dynamic versus sealed bid we examine the impact of potential entry on incumbent bidding behavior in license auctions in both dynamic and sealed bid formats unlike sealed bid auctions dynamic auctions reveal information about the identities of potential winners and allow bidders to revise their bids this helps incumbents to coordinate their entry deterrence efforts if entry is sufficiently costly for each incumbent only the dynamic auction has an equilibrium where entry is deterred for sure numerical calculations suggest that regardless of how costly entry is for each incumbent sealed bid auctions can generate a higher probability of entry as well as a more efficient allocation

on noncooperative oligopoly equilibrium in the multiple leader follower game abstract in this paper we provide new proofs of existence and uniqueness of a stackelberg market equilibrium for a multiple leader follower noncooperative oligopoly model in which heterogeneous firms compete on quantities to this end we consider a two stage game of complete and perfect information in which many leaders interact strategically with many followers the stackelberg market equilibrium constitutes a pure strategy subgame perfect nash equilibrium of this game existence and uniqueness are more difficult to handle in this framework insofar as the presence of several leaders and followers displays a richer set of strategic interactions then to prove existence we notably provide a new procedure to determine the conditions under which the optimal behavior of the followers may be written as functions of the sole strategy profile of the leaders some examples outline our procedure and discuss our assumptions

a model of dynamic limit pricing with an application to the airline industry we develop a dynamic limit pricing model where an incumbent repeatedly signals information relevant to a potential entrant s expected profitability the model is tractable with a unique equilibriu

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

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

multilateral limit pricing in price setting games abstract in this paper we characterize the set of pure strategy undominated equilibria in differentiated bertrand oligopolies with linear demand and constant unit costs when firms may prefer not to produce when all firms are active there is a unique equilibrium however there is a continuum of non equivalent bertrand equilibria on a wide range of parameter values when the number of firms n is more than two and n 2 n 1 firms are active in each such equilibrium the firms that are relatively more cost or quality efficient limit their prices to induce the exit of their rival s when n 3 this game does not need to satisfy supermodularity the single crossing property or log supermodularity moreover the best responses might have negative slopes our main results extend to a stackelberg entry game where some established incumbents first set their prices and then a potential entrant sets its price

endogenous role in mixed markets a two production period model in this paper i investigate endogenous roles in a mixed duopoly where private and state owned public firms compete by allowing two production periods i find that many equilibria exist including the cournot type equilibrium and one stackelberg type equilibrium where the public firm becomes the follower however another stackelberg type equilibrium where the public firm becomes the leader does not exist if small inventory costs are introduced the unique equilibrium outcome becomes the stackelberg type where the public firm is the follower

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

optimal cross licensing arrangements collusion versus entry deterrence this paper analyzes optimal cross licensing arrangements between incumbent firms in the presence of potential entrants the optimal cross licensing royalty rate trades off incentives to sustain a collusive outcome vis a vis incentives to deter entry with the threat of patent litigation we show that a positive cross licensing royalty rate which would otherwise relax competition and sustain a collusive outcome dulls incentives to litigate against entrants our analysis can shed light on the puzzling practice of royalty free cross licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry deterrence mechanism

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

the role of multiple potential entrants sequential entry in noncooperative entry deterrence a number of authors have recently considered whether the free rider problem is exhibited in models characterized by multiple potential entrants sequential entry bernheim 1984 and eaton and ware 1987 find that the free rider problem is not an important factor while mclean and riordan 1989 find that it is in this article i identify a general property whose presence is important for whether a model of noncooperative entry deterrence exhibits a free rider problem and in this way help clarify why the above mentioned authors reach these diverse conclusions the article also demonstrates that quite plausible changes in the specifications of both bernheim and eaton and ware lead to incumbent firms underinvesting in entry deterrence

product innovation transfer under passive partial ownership holdings abstract we investigate the incentives of a high quality firm to transfer for free its proprietary product innovation technology to its standard quality rival on which it has passive partial ownership holdings ppos we identify the conditions under which there exists an ownership threshold to make such a free transfer profitable for the high quality firm and show that these conditions are more stringent under bertrand than under cournot competition finally we show that technology transfer increases aggregate output industry wide profits consumers surplus and social welfare

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

perfect competition as the limit of a hierarchical market game abstract it is shown that competitive equilibrium can be seen as the limit of some hierarchical game in which the rights or information of the players can be strictly ordered

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

price and quantity competition in homogeneous duopoly markets abstract a noncooperative duopoly game is formulated in which the quantity player sells its entire amount up to consumer demand while the price player supplies residual demand both firms transact at the same price depending on the ordering two stage subgame perfect equilibria are equivalent to simultaneous price and quantity nash equilibria or include also the stackelberg equilibrium in any case a firm prefers to be the quantity player

quantity setting oligopoly with endogenous sequencing abstract this paper investigates endogenous sequencing in a quantity setting oligopoly i formulate an n firm m period model where each firm chooses both how much to produce and when to produce it i find that at least n 1 firms simultaneously produce in the first period in every pure strategy equilibrium this result shows that the generalized stackelberg type outcome never appears in equilibrium except in a duopoly

horizontal mergers and product innovation abstract we set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus the model incorporates two competitive channels for merger effects the price coordination channel and the internalization of the innovation externality we solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation while internalization of the innovation externality depresses it the latter effect is stronger in our simulations and as a result the merger leads to lower innovation incentives for the merged entity absent cost efficiencies and knowledge spillovers in our numerical analysis both overall innovation and consumer welfare fall after a merger

capacity output and sequential entry two crucial assumptions frequently made in industrial organization are that an established firm deters entry either by a constant high output the sylos postulate or by high excess capacity the excess capacity hypothesis these assumptions may be an accurate description of the observed conduct of firms in some industries however when the rules of the post entry game are clearly specified the optimal output and investment strategies of an established firm may depart considerably from these behavioral assumptions because of this possible inconsistency with rational behavior any conclusions about the formation of industry based upon either assumption are highly suspect what is more these assumptions avoid the main issue of whether entry deterrence is worthwhile at all this paper presents a dynamic model of entry in which established firms pursue a cournot nash alternatively stackelberg strategy toward a potential entrant the entrant behaves in cournot nash fashion and chooses output on the basis of expected postentry profits at the equilibrium of the post entry game within this framework a constant output entry deterring strategy would involve maintenance of an entry deterring output level before and after entry is threatened an excess capacity entry deterring strategy would involve holding excess capacity at an entry deterring level and increasing output to that level after entry is threatened special conditions are presented under which the sylos postulate or the excess capacity hypothesis will accurately describe optimal entry deterring strategies in addition special conditions are examined under which the established firm maintains a constant output or holds pre entry excess capacity when large scale entry does in fact take place the analysis shows that in general established firm reactions to entry are quite different from these special cases the sylos postulate see joseph bain paolo sylos labini franco modigliani 1958 asserts not only that potential entrants expect established firms to maintain their output constant as entry occurs but that established firms keep output constant at a level that deters entry whether or not it is profitable to do so hailed as a welcome major breakthrough on the oligopoly front modigliani 1958 the sylos postulate underlies many papers in the large theoretical and empirical literature on limit pricing yet the sylos postulate ignores both the strategic interaction between firms and the dynamic aspects of entry 2 unless the established firm s monopoly output exceeds the entrydeterring level the established firm with a general cost function able to choose an entry deterring output level will instead always desire a lower output level before entry for the special case where capacity is an upper bound on output and the established firm is a stackelberg leader in the post entry game

value of reputation in the chain store game with multiple incumbents abstract we extend the basic chain store game to the two incumbent case a highly stylized model is developed to analyze incentives of incumbent firms to maintain reputation for toughness entry deterrence has a public good property since maintaining reputation is costly each incumbent has an incentive to free ride on the entry deterring activities of its counterpart as a result of these incentives both incumbents accommodate when they both have a relatively high initial reputation for toughness this extreme form of underinvestment in entry deterrence becomes less likely as the number of markets with potential entry increases we also demonstrate that an incumbent s payoff is a decreasing function of its reputation over a large range of parameters this result stands in sharp contrast to the existing versions of the chain store game where high reputation for toughness always benefits a weak incumbent

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

colluding on excluding abstract in an oligopoly characterized by barriers to re entry a finite horizon complete information convex costs and the presence of three identical firms i show that in subgame perfect equilibrium two of them the predators can choose to charge an initial price that is so low that the third the prey decides to exit immediately in this predatory pricing equilibrium the predators can enjoy higher profits than in the best collusive equilibrium with three firms thus a coalition of two firms can benefit from colluding on excluding

a note on the free rider problem in oligopoly abstract in this paper we study the free rider problem in oligopoly within a general model of entry deterrence under uncertainty we show that precommitments by incumbents impose both direct and indirect externalities on other incumbents the nature of these externalities depends on the nature of the precommitments specifically relative to the collusive solution precommitments that make incumbents soft tough with respect to the entrant tend to be too high too low whereas those that are public goods public bads with respect to other incumbents tend to be too low too high

delegation market share and the limit price in sequential entry models abstract we construct a model of equilibrium market structure with sequential entry in which firms have u shaped average cost curves the equilibrium is characterized completely in the case of linear demand and quadratic costs in particular the trade off between the incentive to delegate the costs of entry deterrence and the market share advantages of investment by early entrants is fully determined we determine the circumstances under which delegation occurs whether firms delegated the task of entry deterrence find it costly or not is shown to depend in a parametric way on the limit price we show that the strategic equilibrium is socially inefficient relative to the free entry cournot equilibrium

constructing a market performing theory the historical sociology of a financial derivatives exchange this analysis of the history of the chicago board options exchange explores the performativity of economics a theme in economic sociology recently developed by callon economics was crucial to the creation of financial derivatives exchanges it helped remedy the drastic loss of legitimacy suffered by derivatives in the first half of the 20th century option pricing theory a crown jewel of neoclassical economics succeeded empirically not because it discovered preexisting price patterns but because markets changed in ways that made its assumptions more accurate and because the theory was used in arbitrage the performativity of economics however has limits and an emphasis on it needs to be combined with classic themes in economic sociology such as granovetterian embedding and the way in which exchanges can be cultures and moral communities in which collective action problems can be solved

contestable markets an uprising in the theory of industry structure comment a situation traditionally identified as conducive to imperfect competition is when average costs decline and the cheapest scale of production is large relative to the size of the market however some of the more recent literature on industrial organization has emphasized a supposed distinction between fixed costs of production and sunk costs of production a point frequently made is that while the possibility of sunk costs can create genuine barriers to entry pure fixed costs per se do not inhibit competitive market performance this approach finds its logical extreme in the norm or abstraction of perfect contestability perfect contestability is essentially a theory of the polar case of frictionless entry and exit as william baumol stated a contestable market is one into which entry is absolutely free and exit is absolutely costless p 3 certainly this is the most reasonable interpretation of a situation where potential entrants feel free to disregard an incumbent s price response suppose every potential and actual producer has access to the same technology in a perfectly contestable market there are no set up or shut down losses the main result is that even with declining average costs of production the incumbent firm does not dare to post a price higher than average cost price above cost invites being undercut by a hit and run shadow entrant capable of producing at the same flow rate and at identical unit cost during just the briefest instant of time i argue that this line of reasoning is misleading perfect contestability gets around the problem of increasing returns only by in effect assuming it away a hit and run technology makes the firm behave as if it is competitive in a market precisely because the convexity preconditions for competition are de facto being met in that market this comment shows that strictly speaking there is no such thing as a pure fixed cost unless there are sunk costs located somewhere in the relevant production technology all costs are variable as a matter of formal theory you cannot have a range of decreasing average cost without sunk costs presumably there is also an approximation theorem which states that when sunk costs are close to being negligible then average production costs are practically nondecreasing perfect contestability holds approximately in a market only to the extent that production costs for the market are approximately nondecreasing my discussion will be restricted to the familiar case of a single well defined homogeneous fully divisible commodity while more general approaches are possible for the sake of simplicity the following definition is used the average cost function a c y t describes say the minimum cost per unit of output produced at a uniform flow rate y throughout the time interval 0 t especially in applications to industrial organization theory it is essential to remember that cost functions are not generally timeless and that writing ac as a function of y alone can be dangerously vague behind the free entry and exit of a hitand run technology in a perfectly contestable market is the abstraction of no sunk costs investments are fully reversible because nothing is lost in setting up or shutting down production

silent financial interests and product innovation abstract we study quality enhancing r d price competition and welfare in markets with asymmetric passive partial ownership ppo holdings the asymmetries in ppos generate a positive re allocation effect which in some cases can increase consumer and total surplus in markets with no spillovers

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

equilibrium entry patterns under uncertainty abstract in this paper we develop a model in which incumbency patterns are determined endogenously we consider a two period duopoly game under uncertainty and show that the equilibrium entry patterns are determined by the costs and benefits of early entry and the strategic interactions between the firms we also show that under quite plausible cost conditions incumbency may not arise as an equilibrium pattern of the duopoly game

on the effects of entry in cournot markets in the framework of symmetric cournot oligopoly this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that as the number of firms increases the minimal and maximal equilibria lead to i decreasing industry price and increasing or decreasing per firm output and ii increasing industry price and decreasing per firm output in both cases per firm profits are decreasing the analysis relies crucially on lattice theoretic methods and yields general unambiguous and easily interpretable conclusions of a global nature as a byproduct of independent interest new insight into existence of cournot equilibrium is developed

endogenous timing in a mixed oligopoly abstract endogenous order of moves is analyzed in a mixed oligopoly where the firms first choose the timing for choosing their quantities the results are strikingly different from those obtained in a corresponding oligopoly with all profit maximizing firms

entry for buyout the possibility of buying out an entrant has an important effect on entry deterrence entrants can blackmail the incumbent by threatening to keep prices low and buyout can make entry profitable which otherwise would not be in particular the entry deterrence policy of excess capacity to reduce the post entry price can not only fail but work against the incumbent the presence of multiple oligopolistic incumbents or multiple potential entrants however can discourage entry for buyout the long literature on entry deterrence has always assumed that if entry is made unprofitable no entry will occur but as followers of professional football may have suspected a clearly unprofitable competitor might rationally enter a market in the hopes of selling out to the incumbent i will model such a situation and try to show what conditions facilitate entry for buyout in the simplest entry deterrence model the incumbent successfully maintains monopoly by threatening to expand output and cut price after other firms enter but he succeeds only because potential entrants believe the threat if entrants are rational this strategy fails price warfare hurts the incumbent as well as the entrant so the monopolist would let the entrant have a share of profits after entry potential entrants foreseeing the accommodating response ignore the threat deterred entry is a nash equilibrium but not a perfect nash equilibrium it is nash because the entrant chooses to stay out given the incumbent s strategy of cutting prices after entry and the incumbent does not mind committing himself to cutting prices given that entry never occurs a perfect nash equilibrium is a set of strategies that is a nash equilibrium for every proper subgame if the game is started at any of the nodes of the game tree including those off the equilibrium path the strategies the agents pick to maximize their objective function from that node onwards must be part of the equilibrium strategy for the entire game in the subgame which begins after entry has already occurred the incumbent would not choose to cut prices so cutting prices after entry is not part of a perfect equilibrium in the perfect equilibrium entry occurs and is accommodated

industry structure with sequential technology choice abstract noncooperative entry deterrence arises in a market where firms enter sequentially and irreversibly choose a technology in the case of delegated entry deterrence the earliest firms enter with a normal technology and pass on entry deterrence responsibilities to subsequent entrants in the case of partial entry deterrence the earlliest firms choose an inferior technology that allows some but not full entry of later firms with a normal technology in both cases entry is deterred in that the equilibrium number of firms is smaller than would prevail if all firms were to choose a normal technology

overlapping ownership r d spillovers and antitrust policy this paper considers cost reducing r d investment with spillovers in a cournot oligopoly with overlapping ownership we show that overlapping ownership leads to internalization of rivals profits b

the limits of media effects field positions and cultural change in a mutual fund market our paper examines how field structures moderate the effect of the business press on organizational outcomes prior research suggests that the business press shapes organizational outcomes but the question of how these effects depend on organizations positions in a field has attracted limited attention we address this theoretical limitation in an analysis of how mutual funds in sweden were affected by periods when the business press increased its negative coverage of mutual fund fees first we expect that negative coverage influences the way customers evaluate mutual funds second banks have long occupied a dominant position in this market and we thus expect banks to be less affected by the negative coverage of fees than other mutual fund managers we find support for our argument in a longitudinal quantitative analysis of financial net flows into mutual funds the findings indicate the value of contextualizing media effects and considering how field positions moderate the effects of cultural processes

irrationality and monopolistic competition an evolutionary approach this paper shows that a monopolistically competitive equilibrium can evolve without purposive profit maximization specifically this paper formulates a precise evolutionary dynamic model of an industry where there is continuous entry of firms that randomly select their output levels on entry and fix their output levels thereafter firms exit the industry if they fail to pass the survival test of making nonnegative wealth this paper shows that the industry converges in probability to the monopolistically competitive equilibrium as the size of each firm becomes infinitesimally small relative to the market as the entry cost becomes sufficiently small and as time gets sufficiently large consequently in the limit the only surviving firms are those producing at the tangency of the demand curve to the average cost curve and no potential entrant can make a positive profit by entry