Short-run industry performance and potential competition

A central issue in industrial economics is how the price set by all established seller is affected by the threat of competition from newcomers to the market. It is commonly predicted that an intensification of this threat due to a fall in the non-price barriers to entry will result in a reduction of the entry-retarding industry price [8], [5], [2]. Recently we found [4] that such a pre-entry price may also increase with a lowering of the barriers to entry when the established firm realizes that there is a positive finite entry lag between a rival's decision to enter and his appearance as an effective competitor. Our intention in this note is to elaborate on this finding. Exploring the comparative statics analysis of our earlier work we argue that, with an entry lag, a constant pre-entry price attains a minimum value for some intermediate (exogenous) threat of competition where entry is neither free nor blockaded. This intermediate value and the corresponding minimum price policy are characterizedstatus: publishe