Handbook of Game Theory and Industrial Organization, Volume I
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Handbook of Game Theory and Industrial Organization, Volume I

Theory

Edited by Luis C. Corchón and Marco A. Marini

The first volume of this wide-ranging Handbook contains original contributions by world-class specialists. It provides up-to-date surveys of the main game-theoretic tools commonly used to model industrial organization topics. The Handbook covers numerous subjects in detail including, among others, the tools of lattice programming, supermodular and aggregative games, monopolistic competition, horizontal and vertically differentiated good models, dynamic and Stackelberg games, entry games, evolutionary games with adaptive players, asymmetric information, moral hazard, learning and information sharing models.
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Chapter 11: Entry games and free entry equilibria

Michele Polo

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 utility 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.

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