Collusion, entry, and market shares

Abstract

This paper analyzes market entry and collusion in a model of duopoly with product-specific-set-up costs. The analysis demonstrates that collusion can alter the incentives for entry deterrence. We find conditions under which an established firm will permit entry and collude with a potential entrant even though entry deterrence is a viable option under noncooperative oligopoly rules. Conditions are also specified in which entry will be effectively impeded and collusion will not be undertaken.