Entry Threat in Duopoly

Abstract: An oligopolistic market with vertical product differentiation is parametrized in cost parameters. This allows me to study the impact of the technology of the firms (cost parameters) on market structure, conduct, and performance. Firms which differ only by the order of the sequential move to choose a quality use sophisticated entry deterring or entry accomodating strategies. I show that infinitesimal changes in the cost parameters can generate discontinuities in market profits. In particular, higher entry costs can lead to a more competitive outcome.;