 Entry MistakesNo 1729, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: Frequently, aspiring entrants have only limited information about their potential rivals’ entry decisions. As a result, the outcome of the entry game may be that more firms enter than the market can sustain; or, at least, that unnecessary entry investments are made. We refer to these outcomes as ‘entry mistakes’. We consider two models of non-coordinated entry. In these models, entry mistakes occur because of lags in observing rivals’ entry decisions (grab-the-dollar entry) or because entry investments take time (war-of-attrition entry). The wide-body aircraft industry in the late 1960s is presented as supporting evidence for the models’ assumptions. We also discuss the welfare implications of non-coordinated free entry. Both models predict that entry incentives are excessive (resp. insufficient) when duopoly profits are high (resp. low). If entry costs are high, however, entry incentives are excessive under war-of-attrition entry but insufficient under grab-the-dollar entry. Keywords: aircraft manufacturing; Entry; entry regulation; Welfare (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1729 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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