Measuring the social gains from recent technological advances is difficult because there are no real output indexes for some important adopters. Measurement methods that infer the willingness to pay of the adopting industries from the derived demand curve for a new technology overcome this difficulty. The derived demand for high-speed computers for use in banks, finance, and insurance is shown to imply a very large social gain to computerization that was not captured by manufacturers of computers.

This paper proposes an empirical framework for measuring the effects of entry in concentrated markets. Building on models of entry in atomistically competitive markets, we show how the number of producers in an oligopolistic market varies with changes in demand and market competition. These analytical results structure our empirical analysis of competition in five retail and professional industries. Using data on geographically isolated monopolies, duopolies, and oligopolies, we study the relationship between the number of firms in a market, market size, and competition. Our empirical results suggest that competitive conduct changes quickly as the number of incumbents increases. In markets with five or fewer incumbents, almost all variation in competitive conduct occurs with the entry of the second or third firm. Surprisingly, once the market has between three and five firms, the next entrant has little effect on competitive conduct.

Measuring the social gains from recent technological advances is difficult because there are no output indexes from some important adopters. Measurement methods that infer the willingness-to-pay of theadopting industries from the derived demand curve for a new technologyovercome this difficulty. The derived demand for high-speed computersfor use in banks, finance, and insurance is shown to imply a very largesocial gain to computerization that is not captured by computer manufacturers.

This paper reviews events in the plain paper copier (PPC) market immediately after Xerox's monopoly ended. Xerox's behavior and that of a flood of PPC entrants are viewed through the lens of recent advances in the theory of entry and entry deterrence. The events of the early post-entry period also cast some interesting light on the theory of technological competition. The modern theory of entry deterrence rests on a simple, if not obvious, proposition. The (socially) worst industry performance is after entry, the more monopolies there will be, since the interests of the entrant and society are opposed once entry has occurred. A series of papers have considered endogenous changes in the of competition-monopolists who make their industry more competitive (conditional on entry) in order to deter potential entrants.' There are two distinct steps in the entry-deterrence argument. First, it must be possible for events during the monopoly period to affect postentry competition. Some intertemporal complication must be present, either in costs or in firm-specific demand, if the state of the industry at the time of entry is to form important conditions for competition. Second, the monopolist must find it profitable to manipulate the initial by some pre-entry action. The general theoretical questions of entry and deterrence have been cast in quite specific terms for the problem of technological competition. One view emphasizes the (Kenneth Arrow, 1962; Jennifer Reinganum, 1983; Drew Fudenberg and Jean Tirole). Because any innovation destroys some of the rents to older products and processes, incumbent monopolists have a smaller incentive to innovate than potential entrants. Another view (Richard Schmalensee, 1983; Richard Gilbert and David Newbery, 1982) points out that the incumbent's losses from entrant's innovation create a motive for preemptive R&D, product introduction, or patenting. If incumbents are leaders and entrants followers, the second view will hold independent of technology. Note that the difference is over the profitability of entry deterring strategies. In both views, the presence of valuable assets like patents or secrets provides the necessary intertemporal link. Events in the PPC market during the time of Xerox's monopoly did have a substantial impact on the nature of competition in the early postentry period. An Arrow effect is evident, as are other equilibrium explanations of Xerox's rapid decline. The alternative explanation that Xerox was fat is also considered below.

Arthur Robson's excellent comment introduces a new formulation of the problem of consistent conjectures. My reply uses the new formulation in order to resolve Robson's troubling example of nonexistence, and to make the problem clearer. It also shows why my original approach was sensible only for the linear demand curve case. A slightly more general approach used here has consistent conjectures in Robson's quadratic inverse demand example.