Profit-Increasing Entry and the Low-Entry Trap under Coopetition

Keisuke Hattori and Takeshi Yoshikawa

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: Entry is commonly thought to harm incumbents in Cournot markets. This paper shows that this need not hold under coopetition. We analyze a two-stage Cournot oligopoly where symmetric firms first invest non-cooperatively in shared demand-expanding activities with non-excludable benefits and then compete in quantities. With convex production costs, entry can increase individual-firm profits despite intensified competition. We further show that this non-monotonicity can create a low-entry trap: no firm enters even though an active equilibrium would be profitable for firms and beneficial to consumers. Because the active equilibrium is self-sustaining, a finite one-time "big push" that assembles a critical mass of entrants suffices to escape the trap-whereas in a standard monotone market with unprofitable monopoly entry, every entrant would require support. The push can be implemented through transitional entry subsidies or coordinated public "seed" investment in the shared activity, and we characterize which instrument is cheaper and when each pays for itself in total surplus.

Keywords: Coopetition; Profit-increasing entry; Critical mass; Low-entry trap; Cournot oligopoly (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:343408

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