THE SNOWBALL EFFECT

Many economists think that dominant positions unprotected by strategic or operating advantages will tend to decay. I demonstrate that that intuition is flawed by devising a model of noncooperative duopoly in which the initially larger competitor monopolizes all investment opportunities - even though it is no more efficient than its smaller rival - as part of an effort to push up output prices. I also present an apparent example of this mechanism at work and discuss the implications for public policy. © 1990.