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Stackelberg Leadership with Product Differentiation and Endogenous Entry: Some Comparative Static and Limiting Results

Kresimir Zigic

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Allowing for endogenous entry in the traditional Stackelberg setup with product differentiation, leads to reverting of the standard comparative static and limiting results. Unlike in the standard Stackelberg setup with barriers to entry, the leader's profit increases when the differentiation becomes lower. The reason is that competition becomes tougher when products become more alike, and consequently, fewer firms enter in equilibrium. On the other hand, increasing product differentiation towards its limit results in number of entrants tending to infinity and for very large market, the profit of the leader approaches zero. Thus market structure approaches monopolistic competition, rather than the standard monopoly outcome that occurs with exogenous number of followers.

Keywords: Stackelberg leadership; product differentiation; endogenous entry. (search for similar items in EconPapers)
JEL-codes: L1 D43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
Date: 2008-10
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Journal Article: Stackelberg leadership with product differentiation and endogenous entry: some comparative static and limiting results (2012) Downloads
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