External Effect of Entry

Steffen Ziss

Manchester School, 2025, vol. 93, issue 3, 230-241

Abstract: This paper provides an analysis of the external effect of entry for both differentiated and homogenous products which takes account of the integer constraint, allows for cost‐based or quality‐based differences in firm size and for variation in firm conduct. The analysis shows that the external effect of entry is positive if the entrant is sufficiently large compared to the average incumbent, but not necessarily larger than the average incumbent, market conduct is competitive, there are few incumbents, marginal cost is steep relative to demand or products are sufficiently differentiated. These results contribute to the literature by expanding the set of market settings for which the external effect of entry is positive and thus for which profitable entry raises welfare.

Date: 2025
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https://doi.org/10.1111/manc.12501

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Persistent link: https://EconPapers.repec.org/RePEc:bla:manchs:v:93:y:2025:i:3:p:230-241

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