A NOTE ON THE FREE RIDER PROBLEM IN OLIGOPOLY

In this paper we study the free rider problem in oligopoly within a general model of entry deterrence under uncertainty. We show that precommitments by incumbents impose both direct and indirect externalities on other incumbents. The nature of these externalities depends on the nature of the precommitments. Specifically, relative to the collusive solution, precommitments that make incumbents 'soft' ('tough') with respect to the entrant tend to be too high (too low), whereas those that are 'public goods' ('public bads') with respect to other incumbents tend to be too low (too high).