Dominant Firms, Barriers to Entry Capital and Entry Dynamics

Recent literature in Industrial Organization has shown that the threat of entry limits the price setting power of dominant firms and stimulates the incumbents to increase innovations - both leading to welfare improvements. n the other hand dominant firms as incumbents strive to build up entry preventing capital. In such an environment of heterogeneous firms, the authors study the dynamics of competition as suggested in an earlier paper by Brock (1983).