Document Type

Discussion Paper

Publication Date

1-1-1981

CFDP Number

576

CFDP Pages

20

Abstract

Product differentiated duopoly with a potential entrant facing a single period fixed cost entry barriers is modeled as a noncooperative game. In addition to characterizing the equilibrium solutions and relating them to entry costs and product differentiation, a comparison of price and quantity competition shows that entry conditions are qualitatively sensitive to the strategic variables used in a given industry. Quantity competition appears to be more favorable for entry than price competition. The use of threats and other exclusionary tactics, such as limit pricing, decisively determine the outcome when entry costs are moderate.

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