Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97655
Authors: 
Spiegel, Yossi
Stahl, Konrad
Year of Publication: 
2014
Series/Report no.: 
ZEW Discussion Papers 14-039
Abstract: 
We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.
Subjects: 
price competition
business cycle
entry
entry deterrence
JEL: 
D43
L41
Document Type: 
Working Paper

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