[Publisher:] Institut für Weltwirtschaft (IfW) [Place:] Kiel [Year:] 1996
Kiel Working Paper 777
This paper discusses a simultaneous market entry game between two firms with different fixed costs. This case is a typical application of mixed strategy equilibria. Conventional wisdom would suggest that the low-cost firm is more likely to enter the market. This presumption is wrong. Instead, the paper demonstrates a market entry paradox: the equilibrium probability of entry is higher for the high-cost firm than the equilibrium probability of entry of the low-cost firm.