Entry and Competition with Product Differentiation: The Case of Swedish Concentrated Markets

Abstract

Empirical investigations into competitive behaviour on different markets is important since it does not exist one single theoretical model of competition. This thesis empirically investigates the competitiveness in a number of Swedish concentrated markets by leveraging the relationship between market entry and market size using the adjusted entry threshold framework developed by Schaumans and Verboven (2015). Compared to the standard entry threshold framework developed by Bresnahan and Reiss (1991), the adjusted entry threshold framework takes product differentiation into account and thus captures both market expansion and business stealing following entry of a new firm. The estimated entry thresholds allow us to make inferences on the degree and structure of competition. The three sectors we analyse are real estate agents, restaurants, and plumbers. We find that entry has a positive effect on competition and when taking market expansion into account we find that the magnitude of this effect increases. The largest effect for all sectors occurs when a market goes from monopoly to duopoly. These results are in line with previous studies.