Selection in Dynamic Entry Games*

“…Lippman et al (1991) demonstrate that demand uncertainty can produce heterogeneity in the equilibrium employment of production technologies and can permit the coexistence of producers exhibiting different minimum average costs. Gromb et al (1997) derive sufficient conditions for competition to select the most efficient firm in a dynamic entry deterrence framework. Esteve-Pérez (2005) studies the impact of vertical product differentiation on firm selection with declining demand, and finds that, in equilibrium, either the low quality or the high quality firm may elect to exit, depending on the ratios of fixed costs and outputs.…”

Section: Introductionmentioning

confidence: 99%

Opportunity Costs, Competition, and Firm Selection

Atallah

2006

International Economic Journal

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The paper questions the standard economic assumptions that competing economic agents have identical reservation utility levels, and that when differences in opportunity costs exist, they can be conveniently represented by fixed costs. Asymmetries in opportunity costs are considered in relation to current efficiency. The effect of this interchangeability of skills is studied in the context of the effect of entry on firm selection in a Cournot setting. It is found that inefficient firms are more likely to crowd out efficient ones when the relationship between current efficiency and opportunity costs is strong, and when the fixed costs of changing markets are high. Moreover, in the long-run, firms with intermediate cost levels are likely to induce the exit of low and high cost firms. The model sheds light on the benefits of diversification by multiproduct and multinational firms, and their relationship to skill transferability.Entry, exit, firm selection, firm survival, opportunity costs, skill transferability, diversification,

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“…An abundant literature has been devoted to the case of natural monopoly. Gromb, Ponssard and Sevy (1997), Maskin and Tirole (1987), Lahmandi-Ayed, Ponssard and Sevy (1996), Lahmandi-Ayed (2001) consider the question in a dynamic framework. Although the case of natural monopoly corresponds sometimes to reality, it is only a particular example among all possible cases.…”

Section: Introductionmentioning

confidence: 99%

“…This paper rests on Gromb et al (1997) and Lahmandi-Ayed (2001). Both papers consider the case of natural monopoly.…”

Section: Introductionmentioning

confidence: 99%

“…Both papers consider the case of natural monopoly. Gromb et al (1997) model competition as a repeated game between an incumbent firm and a potential entrant, in which at each period leadership is attributed according to a specific rule. The idea is that when the recurrent threat of entry is well designed, it may discipline the behavior of the monopoly.…”

Section: Introductionmentioning

confidence: 99%

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Dynamic Entry Games: The Case of Natural Duopoly

Lahmandi-Ayed

2006

Int. Game Theory Rev.

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In the case of natural duopoly, we suggest a finitely repeated game between two incumbent firms and a potential entrant that limits the incumbent firms' power and compels them to approach economic efficiency. We prove that such a game admits a perfect subgame equilibrium along which the incumbent firms maintain with equal quantities while preventing entry. Moreover, the incumbents' strategies along this path converge to average cost pricing quantities as the number of periods goes to infinity.

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Selection in Dynamic Entry Games*

Cited by 7 publications

References 11 publications

The Determination of Optimal Fines in Cartel Cases: The Myth of Underdeterrence

The Determination of Optimal Fines in Cartel Cases: The Myth of Underdeterrence

Opportunity Costs, Competition, and Firm Selection

Dynamic Entry Games: The Case of Natural Duopoly

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