Date Added: Dec 2009
The authors build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). They identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader's intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. They also contrast the leader's investment decisions with those of the social planner.