The Effect of Asymmetric Entry Costs on Bertrand Competition

The Effect of Asymmetric Entry Costs on Bertrand Competition

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Description

By permitting firms to have different entry costs, I generalize two previously studied models of two-stage entry and pricing amongst Bertrand competitors. I find that the existing results depend critically on the symmetry assumption. For example, if firms' entry decisions are observed before price-setting occurs, then total welfare can increase following the introduction of a potential entrant, in contrast to the unambiguous welfare reduction found in the symmetric setting. If firms' entry decisions are unobserved before pricing-setting occurs, then the expected price typically decreases or remains unchanged following the introduction of a potential entrant, in contrast to the unambiguous price increase found in the symmetric setting. In both price-setting environments, competition increases following the introduction of potential entrants with sufficiently low entry costs, a finding that is obscured by focusing on the symmetric models.show more

Product details

  • Paperback | 26 pages
  • 215.9 x 279.4 x 1.52mm | 117.93g
  • Createspace
  • United States
  • English
  • black & white illustrations
  • 1514145901
  • 9781514145906