Entry and Exit over the Industry Life Cycle

This article presents a theoretical model of the rivalry between two firms in a market that undergoes a life cycle of growth and eventual decline. Firms in this market have the option of exit and reentry. In the equilibrium for the growth phase, high entry costs can act like high exit costs, thereby conveying a commitment advantage. For some parameter configurations, this advantage is sufficient to enable a high cost firm to preempt its lower cost rival. During the decline phase, the smaller duopolist is able to outlast its rival, provided that the smaller firm's reentry costs are positive.