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Stackelberg competition with endogenous entry

Author

Listed:
  • Federico Etro

    (Department of Economics, University of Milan-Bicocca)

Abstract
This paper analyzes market structures where leaders have a first mover advantage and entry by the followers is endogenous. The strategy of the leaders is always more aggressive than the strategy of the followers independently from strategic substitutability or complementarity. Under quantity competition, the leader produces more than any other firm and I determine the conditions for entry deterrence to be optimal (high substitutability and constant or decreasing marginal costs). Under price competition, the leader sets a lower price than each follower, just the opposite than with an exogenous number of firms. In contests the leader invests more than each follower. In all these cases a leadership improves the allocation of resources compared to the Nash equilibrium with endogenous entry.

Suggested Citation

  • Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
    • Handle: RePEc:mib:wpaper:121
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Stackelberg Competition; Leadership; Free Entry;
    All these keywords.

    JEL classification:

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

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