Many economists think that dominant positions unprotected by strategic or operating advantages will tend to decay. I demonstrate that the 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.

Keywords:

• Market Structure: Industrial Organization and Corporate Strategy