Essays on Imperfect and Dynamic Competition

This dissertation studies issues of imperfect and dynamic competition taking as motivation strategic interaction in the United States paper industry. The components of this work focus on both theoretical and empirical issues that arise in asymmetric oligopoly markets more generally. The first chapter considers that when consumers recycle a good, the future supply of intermediate inputs increases. If some of the inputs are used to manufacture a good that competes with the original good, the initial seller faces an incentive to reduce its supply to limit this source of future competition. I illustrate this incentive in a model of dynamic oligopoly, and test the predictions using data from the US paper industry between 1973 and 1993. I find that firms decrease quantity in response to policy changes that increase competition from firms using the recycled input. I then use the model to illustrate two implications: (i) the response to strategic incentives may lead antitrust authorities to underestimate the exercise of pre-merger market power, and horizontal mergers let firms internalize their effects on future competition, resulting in a greater supply reduction post-merger; and (ii) the policy trade-off between reducing harms from pollution and reducing the exercise of market power under oligopoly is sharper when firms respond to dynamic incentives. In the second chapter, I develop a tractable oligopoly model that preserves many of the predictions of the dominant firm model. Antitrust policy looks with skepticism on dominant firms as they are in position to leverage the position into higher profits at the expense of consumers and rival firms. I show the equilibrium price is higher and market share of the dominant firm is smaller in the dominant firm model in comparison to my oligopoly model. This suggests that the assumption on supply side strategic behavior are important for market outcomes. When the number of leaders is endogenous, more firms enter when rivals are price-takers. This result suggests barriers to entry must be high to sustain dominant market structures.Doctor of Philosoph