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by Hal R. Varian, Hal R. Varian
http://www.sims.berkeley.edu/~hal/Papers/entry.ps.Z
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Abstract:
Abstract. There is a lot of anecdotal evidence that entry of new firms reduces not only prices but also costs. However, it is far from clear how this cost-reduction works. In this paper I investigate three models of how entry may cause cost reduction: managerial incentives, survival of the fittest, and imitation. The models have somewhat different implications for social welfare.
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