Abstract
It seems intuitive that a firm with a cost advantage will be tempted to expand to chase its rivals from the market. We show that in a market with few participants, in which terms of trade are bargained, the firm might strategically prefer to stay as small as its rival and leave part of the market unserved in order to extract more from its clients. The decision depends on its bargaining skills, but counterintuitively, greater bargaining skills might make the firm less likely to expand.
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