Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, May 21, 2019

Timing of entry with heterogeneous firms

By: Smirnov, VladimirWait, AndrewXu, Rong
Abstract: We examine entry in a market-entry timing model. Early entry allows a firm to enjoy a higher instantaneous post-entry pro t, while later entry has the benefi t of lower entry costs. In our model, firms can be asymmetric in terms of costs. Specifically, a more efficient rm enters with lower present value of costs. First, we show that entry order is always efficient in the duopoly game while in the triopoly model an efficient entry order could be violated. Moreover, one of the most notable results is that in the triopoly model we generate the necessary condition for an efficient order of entry. In addition, we explore how the rents earned by duopolists relative to a monopolist (the structure of pro ts in the market) impact the order of entry. These results would be useful for future empirical studies of market entry. Furthermore, our paper investigates the welfare implications of the entry in equilibrium by exploring the dynamics of the initial entry time in duopoly and triopoly markets. Previous studies found that the leader's time of entry is typically inefficiently too late. Our results show that unlike in the symmetric case, in the presence of asymmetric fi rms, fi rst entry is not necessarily inefficiently delayed, especially in markets with higher duopoly effects (which capture duopoly rents relative to those for a monopolist) and with fi rms that are more differentiated. This result implies that encouraging an extra fi rm to enter in an oligopolistic market could shorten the period consumers have to wait for new products, and potentially increase social welfare.

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