Entry Games and Free Entry Equilibria

Handbook of Game Theory and Industrial Organization, Corchon L. and Marini M (eds), Edward Elgar, 2016, Forthcoming

Bocconi University IEFE ‐ The Center for Research on Energy and Environmental Working Paper No. 87

37 Pages Posted: 1 May 2016

See all articles by Michele Polo

Michele Polo

Bocconi University - Department of Economics

Date Written: April 1, 2016

Abstract

This Chapter reviews the theoretical literature on entry games and free entry equilibria. We show that a wide range of symmetric oligopoly models share common comparative statics properties. Individual profits and quantities decrease in the number of firms, and tend to competitive or monopolistic competitive equilibria when the number of firms increases indefinitely. The maximum number of firms sustainable in a symmetric long run equilibrium depends on technology (economies of scale), preferences (market size) and strategies (toughness of price competition). On the normative side, in homogeneous product markets the business stealing effect drives the result of excessive entry, whereas adding product differentiation and the utillity from variety may revert the result. We then consider asymmetric free entry equilibria that exploit the aggregative nature of many oligopoly models. Finally, we discuss endogenous sunk costs and persistent concentration and frictionless entry and contestable markets.

Keywords: Entry, Free entry equilibria, endogenous and exogsnous

JEL Classification: L1, L13, D43

Suggested Citation

Polo, Michele, Entry Games and Free Entry Equilibria (April 1, 2016). Handbook of Game Theory and Industrial Organization, Corchon L. and Marini M (eds), Edward Elgar, 2016, Forthcoming; Bocconi University IEFE ‐ The Center for Research on Energy and Environmental Working Paper No. 87. Available at SSRN: https://ssrn.com/abstract=2772420

Michele Polo (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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