A Theory of Market Structure with Sequential Entry

This article sets out a theory of market structure with sequential entry. We characterize the perfect Nash equilibrium to the entry game in several propositions. First, equilibria never involve excess capacity. Second, a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically, i.e., with no further entry. Third, the equilibrium number of firms is the smallest number that can deter entry. Fourth, aggregate output in equilibrium is no smaller than the limit output. We calculate some explicit solutions to the model and examine comparative static properties.