Successive Oligopolies with Differentiated Firms and Endogenous Entry∗

This paper develops a model of successive oligopolies with endogenous entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier struc-ture while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the downstream deregulation is more effective if the industry is relatively concentrated and vice versa. Furthermore, we analyze how different forms of vertical restraints shape the endogenous market structure and provide conditions under which they are welfare reducing