Entry in Monopoly Market

Abstract

This paper develops new empirical models of market concentration from game-theoretic models of entry. We construct our models from inequality conditions that describe entrants' equilibrium strategies in simultaneous-move and sequential-move games, and use them to study the effects of entry in isolated monopoly markets for new automobiles. From estimates of the market size necessary to support one and two dealers, we conclude that monopoly dealers do not block the entry of a second dealer. We also find that entry does not cause price-cost margins to fall by much.