This paper shows how market entry into an unprofitable market can be profitable for a firm. A firm's expansion into a new market can have a beneficial feedback effect for that firm in its "old market". By entering into a new market, the firm increases its produced quantity and has higher...

The authors study pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. They show that there exists a range of the equilibrium price in...

This study derives pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions and seek to maximize the weighted sum of their absolute and relative profits. The study shows that there exists a range of equilibrium prices in duopolistic...

In this paper, we investigate the profitability of horizontal mergers of firms with price adjustments. We take a differential game approach and both the open-loop as well as the closed-loop equlibria are considered. We show that the merger incentive is determined by how fast the price adapts to...

We introduce a new measure of competition: the elasticity of a firm's profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competition. Using firm-level data we compare PE with the most popular competition measures such as the price cost...

This study investigates the profitability of a decrease in the degree of product differentiation. We consider a vertical duopoly with linear tariffs and find that both downstream firms can increase their profit after a decrease in the degree of product differentiation if each downstream firm...

The existence of reference price effects in consumer decision making is well documented in prior research, but few studies focus on its implications for firms' strategic behavior. Using a competitive model, we address this gap by examining how firms' product positioning and pricing strategies in...

I develop a model of dynamic firm entry, oligopolistic competition and returns to scale in order to decompose TFP fluctuations into technical change, economic profit and markup fluctuations. I show that economic profits cause short-run upward bias in measured TFP, but this subsides to upward...

This paper analyzes the interaction between R&D and merger profitability. The industry is composed of symmetric firms who undertake cost-reducing R&D and compete in output. A subgroup of firms merge, and all firms adjust their R&D investments to the new market structure. It is found that in most...

Weyl and Fabinger (2013) analyze the social incidence of competition and theoutput and welfare effects of third-degree price discrimination by considering thehypothetical entrance of exogenous quantity into a market. The formulas they use forthis purpose, however, are correct only for marginal...