Chapter 1

Strategic Behaviour of Incumbents Rationality, Welfare and Antitrust Policy

Kai Hüschelrath

'Look ahead and reason back.'

Dixit and Nalebuff (1991)*

1. Introduction

The liberalization of formerly regulated markets often leads to 'asymmetric' market structures characterized by one or a few large incumbent firms retaining considerable market power and several smaller new entrants. These new competitors threaten the incumbents in at least two ways. On the one hand, they take market share away reducing an incumbent's share of the profit pie. On the other hand, new entrants often intensify competition reducing the size of the profit pie. Against this background, it is not surprising that incumbent firms would like to impede market entry ...

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