Entry and Competition in Differentiated Products Markets

Catherine Schaumans () and Frank Verboven

The Review of Economics and Statistics, 2015, vol. 97, issue 1, 195-209

Abstract: We propose a methodology for estimating the competition effects from entry when firms sell differentiated products. We first derive precise conditions under which Bresnahan and Reiss’s entry threshold ratios (ETRs) can be used to measure competition effects. We then augment the traditional entry model with a revenue equation. This serves to adjust the ETRs by the extent of market expansion from entry, giving unbiased estimates of the competition effects. We apply our approach to seven local service sectors. We find that entry typically leads to significant market expansion, implying that traditional ETRs may substantially underestimate the competition effects from entry. © 2015 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Keywords: competition effects; differentiated products; ETRs; traditional entry model; market expansion (search for similar items in EconPapers)
JEL-codes: G00 G02 L10 O00 P00 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Entry and Competition in Differentiated Products Markets (2011)
Working Paper: Entry and competition in differentiated products markets (2011)
Working Paper: Entry and Competition in Differentiated Products Markets (2011)
Working Paper: Entry and Competition in Differentiated Products Markets (2011)
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