THE DIRECT ENTRY VERSUS TAKEOVER DECISION AND STOCK-PRICE PERFORMANCEAROUND TAKEOVERS

We develop a Cournot oligopoly model of an industry with a potential e ntrant. Entry into the industry can be effected either directly or thr ough acquisition of an incumbent. We establish the existence of an equ ilibrium in which the types of potential entrant differentiate themsel ves by the entry strategy chosen. A takeover offer generated by this b ehavior reveals information to the capital markets, which repond in a manner consistent with the empirical evidence by driving up the value of the targeted incumbent and driving down the value of the bidding en trant.