Lecture4-Entry__上海交大产业组织实务课件.pdf

Empirical Models of Entry Empirical IO: Lecture 4 Chun-Yu Ho, SJTU Bresnahan and Reiss (1991) • Develop new empirical models of market structure from game-theoretic models of entry – Firms profits depend on their competitors actions – Do not observe entrants revenues or costs – Use the relationship between market size and firms’ entry to infer the entry threshold in terms of population • Construct two measures of the effects of entry – Competitive cost of entry – Presence of entry barriers or differences in entrants fixed costs – Focus on the entry threshold of an additional firm • Examines the market for 5 retail and professional industries Monopoly Duopoly Markets • Monopoly market – 1 firm enters for non-negative long-run profits – The next most profitable potential entrant firm does not enter due to negative long-run profits π 0 π 0 ≥ 1 2 • Duopoly market – 2 firms enter for non-negative duopoly profits – Other potential entrants do not enter due to negative profits π ≥0 π 0 2 3 • In markets with N firms, N firms expect non-negative profits and the other potential entrants expect negative profits Demand Cost • Assume the demand functions of market m is ( , ) ( ) Q d Z P ×S Y • Q is the total unit of sales • d(Z,P) is the demand function of a representative consumer • S(Y) is the number of representative consumers – Z does not includes S [assume the market size does not affect consumers’ tastes] – Assume holding prices constant, a doubling of S will double unit sales • Assume