The paper establishes why entry of a competitor can increase the profit of an incumbent when the products sold are differentiated durable goods. The results are developed for Markovian equilibria and do not rely on collusive strategies discussed in the seminal work by Gul in 1987. Instead, the result establishes that the presence of a competitor may reduce the undercutting motive of an incumbent when products are suitably differentiated. We apply these insights to Hotelling spatial competition model to show that durability may reduce product differentiation, increase producer surplus, and improve efficiency.
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