ABSTRACT
Introduction Within the great stream of the imperfect/monopolistic competition revolution of the early 1930s much was written concerning the role of excess capacity and potential entry in less-than-perfectly competitive markets. (Harrod, 1934, 1952; Kaldor, 1935, 1938; Bain, 1949, 1950, 1954a, b; Clark, 1940; Osborne 1964 and Pyatt 1971 provide early critical assessments of this literature.) The bone of contention was the pricing policy chosen by oligopolistic firms facing the threat of external firms’ entry.1One of the analytical outcomes of the above literature was the static limit-pricing model with symmetric information, also referred to as the Bain-Sylos Labini-Modigliani model. That model now belongs to the history of oligopoly cum entry theory: Gilbert, in his 1989 review article on the role of potential competition within industrial organization theory, refers to it as the ‘classic limit pricing model’. According to Gilbert, a basic assumption in the model concerned (when scale economies are included in the picture) is that ‘entrants expect that established firms will not accommodate entry by reducing their output’ (Gilbert 1989: 108). In a footnote, Gilbert adds:
A particular example of the non-accommodation assumption is the ‘Sylos Postulate’ that established firms will maintain their pre-entry outputs, named after the work of Sylos Labini (1962, originally published in Italian in 1958). Game theorists will recognize this assumption as Nash-Cournot behavior on the part of entrants, with the incumbent acting as a Stackelberg leader.
