Econometrica: Mar 1980, Volume 48, Issue 2

On the Effects of Entry

https://doi.org/0012-9682(198003)48:2<479:OTEOE>2.0.CO;2-L
p. 479-490

Jesus Seade

The effects of entry into an oligopolistic industry are studied, generalizing the usual Cournot model to allow for the possibility of collusion by firms and deriving stronger results than had previously been obtained. Necessary and sufficient conditions for output per firm $y$ to rise or fall as entry occur are given and discussed, and the "perverse" effect (entry increasing $y$) is shown to be consistent with stable equilibria and not empirically implausible. In contrast, it is shown that industry output unambiguously expands and profits per firm fall as entry into stable equilibria takes place. Total industry profits are also considered and some results obtained.

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