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Profit Raising Entry
Author(s) -
Mukherjee Arijit,
Zhao Laixun
Publication year - 2017
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12109
Subject(s) - stackelberg competition , marginal cost , barriers to entry , microeconomics , raising (metalworking) , profit (economics) , industrial organization , economics , business , monopoly , engineering , mechanical engineering
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.