Topics in oligopoly : local equilibria, choice of product, entry deterrence.
The first chapter is an introductory one. In chapter
2 I study the existence of oligopoly equilibria when
firms have only a local knowledge of their demand curves.
I introduce two notions of equilibrium: "local" and
"first-orde'r" Nash equilibria. The first is a point where
all firms are at a local maximum of their profit functions,
the latter is.a point wh~re the first-order conditions
for profit maximization are simultaneously satisfied for
all firms (this is an equilibrium if each firm only knows
the linear approximation to its own demand curve at that
point). The main result is that a first-order equilibrium
exists always, that is, with arbitrary demand functions.
In chapter 3 I consider the problem of choice of
product quality by two firms which enter the market
simultaneously. I show that Hotelling's principle of
minimum differentiation may hold or not, depending on
the solution concept which is adopted for the post-entry
game and on the structure of costs.
In chapter 4 I re-examine the common claim that in
the presence of threat of entry firms tend to produce
more products than they would otherwise. I show that
entry deterrence is always optimal, but it need not be
achieved through p~oduct proliferation: in some cases
the incumbent monopolist resorts to an entry-deterring
strategy based on location choice rather than product
proliferation. I also show that in some cases the number
of products chosen by the incumbent facing the threat
of entry is strictly greater than the minimum number
required to deter entry.
,In chapter 5'1 show that advertising can be used
as a barrier to entry even if there are no asymmetries
in the effectiveness of advertising between existing
... f!irms ,and, new entrants .HI also show-that entry deterrence
is achieved through "excessive" advertising.