A Model of Duopoly Suggesting a Theory of Entry Barriers

Avinash Dixit

Bell Journal of Economics, 1979, vol. 10, issue 1, 20-32

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.

Date: 1979
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Working Paper: A MODEL OF DUOPOLY SUGGESTING A THEORY OF ENTRY BARRIERS (1978)
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