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Entry and Competition in Concentrated Markets

Timothy F. Bresnahan and Peter C. Reiss
Journal of Political Economy
Vol. 99, No. 5 (Oct., 1991), pp. 977-1009
Stable URL: http://www.jstor.org/stable/2937655
Page Count: 33
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Entry and Competition in Concentrated Markets
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Abstract

This paper proposes an empirical framework for measuring the effects of entry in concentrated markets. Building on models of entry in atomistically competitive markets, we show how the number of producers in an oligopolistic market varies with changes in demand and market competition. These analytical results structure our empirical analysis of competition in five retail and professional industries. Using data on geographically isolated monopolies, duopolies, and oligopolies, we study the relationship between the number of firms in a market, market size, and competition. Our empirical results suggest that competitive conduct changes quickly as the number of incumbents increases. In markets with five or fewer incumbents, almost all variation in competitive conduct occurs with the entry of the second or third firm. Surprisingly, once the market has between three and five firms, the next entrant has little effect on competitive conduct.

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