A Model of Duopoly Suggesting a Theory of Entry Barriers
Volume: Volume 10, No. 1
Issue: Spring 1979
Pages: pp. 20-32
Authors: Avinash Dixit
Title: A Model of Duopoly Suggesting a Theory of Entry Barriers
Abstract: This paper analyzes a model of duopoly with fixed costs. Leadership by one "established" firm may yield an outcome in which the second is inactive, but entry prevention is not a prior constraint. We find that two aspects of product differentiation have distinct effects: an absolute advantage in demand for the established firm makes entry harder, but a lower cross-price effect facilitates it. In the basic model we maintain the same quantity after entry. An extension of the model deals with the case where the threat of a predatory output increase after entry is made credible by carrying excess capacity prior to entry.
JEL Classification
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)