In the Dixit model, incumbents deter entry by overinvesting in capacity, as the costs of capacity are sunk and up to its capacity the MC of the incumbent firm is less than the MC of the entrant, making it credible for the incumbent firm to produce to capacity
Whether strategic entry deterrence in the Dixit model is profitable depends on the relative importance of capital costs and the extent of economies of scale
Section 2 of the Sherman Act prohibits monopolization in the United States, with the offense having two elements: (1) possession of a monopoly and (2) exclusionary or predatory conduct
Contestable markets are imperfectly competitive markets in which firms face real and potential competition, and the threat of entry from new rivals may be sufficient to keep the industry operating at a competitive price and output
Sunk costs of entry create barriers to entry by exposing the entrant to the risk of nonrecovery, raising the cost of capital for entrants and creating a cost disadvantage vis-à-vis incumbents
The welfare implications of barriers to entry are case specific, as structural barriers to entry or strategic entry deterrence by incumbents may increase or decrease welfare
Correspond to the second stage of the two-stage game, such as prices and quantities, made conditioned on the strategic environment created in the first stage
The welfare effects of strategic investment are ambiguous, as even if consumers are made better off, rival firms may be made worse off, and in some cases, consumers will be made worse off
If advertising is persuasive but not informative, in both monopoly and oligopoly equilibrium, the level of advertising will be excessive from a welfare point of view
Other things being equal, an increase in total industry output will be welfare improving, so if advertising causes consumers to purchase more, it can be welfare increasing
When advertising is an exogenous sunk cost, any increase in the sunk advertising investment required to enter the industry will increase the equilibrium level of concentration
When advertising is an endogenous sunk cost, advertising outlays can increase indefinitely as market size increases, but there is a lower bound to concentration below which the market never goes