PROFIT RAISING ENTRY

Common wisdom suggests that entry reduces profits of incumbent firms. On the contrary, we demonstrate that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones. And...

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Bibliographic Details
Published inThe Journal of industrial economics Vol. 65; no. 1; p. 214
Main Authors Mukherjee, Arijit, Zhao, Laixun
Format Journal Article
LanguageEnglish
Published Oxford John Wiley & Sons Ltd 01.03.2017
Blackwell Publishing Ltd
Subjects
Benefit cost analysis
Cost analysis
Notes on the "Journal of Industrial Economics" Website
Profits
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Summary:Common wisdom suggests that entry reduces profits of incumbent firms. On the contrary, we demonstrate that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones. And the total outputs of all incumbents may be higher under entry.
Bibliography:We thank the Editor for extremely helpful comments and suggestions. Arijit Mukherjee gratefully acknowledges financial support from The Leverhulme Trust under Programme Grant F114/BF. The usual disclaimer applies.
ISSN:0022-1821
1467-6451
DOI:10.1111/joie.12109