On entry, exit, and coordination with mixed strategies

A dynamic entry and exit game is studied where, following Dixit and Shapiro (1986, The economics of strategic planning, Lexington Books, pp. 63-79), f irms play symmetric mixed strategies. Coordination among entrants improves and creates a tendency for the value of incumbency to increase as the numbe r of incumbent firms increases (up to the point of excess capacity). This f eature implies that, when considering mixed strategies, the relevant payoff s are not monotonic: as the probability of entry increases, expected profit for a given firm, conditional on entry, increases over some initial range. It is shown that the payoffs have an interesting dynamic structure which a llows the complete characterization of the equilibrium, (C) 2000 Elsevier S cience B.V. All rights reserved. JEL classification: C72; C73; D43; L13.