Entry in a Dynamic Model with Equilibrium Price Dispersion with an Application to the Market for Long-Distance Telephone Services
Ashish Nayyar ()
Journal of Public Economic Theory, 2004, vol. 6, issue 4, 577-592
Models of entry based on the traditional models of oligopoly do not allow for price dispersions on homogenous products. Yet, such price dispersions do exist for homogenous products, and a firm does not lose its entire market share when it fails to charge the lowest price. Existing models of equilibrium price dispersion are not designed to analyze entry in a dynamic framework. A dynamic model is developed that allows an analysis of the effects of entry into a previously monopolized market. Despite asymmetric initial shares, the market shares of equally efficient firms tend to equalize over time. An application is the market for long-distance telephone services following the divestiture of the bell operating companies from AT&T. Copyright 2004 Blackwell Publishing Inc..
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