This paper by Avinash Dixit, published in the Warwick Economic Research Papers series, presents a model of duopoly that incorporates economies of scale, product differentiation, and absolute advantages in cost or demand. The model aims to provide a unified theory of entry barriers by placing different forces that deter entry into a common framework. Dixit focuses on the new aspects that emerge when these features are included, particularly the impact of fixed costs and product differentiation on entry possibilities. The paper begins with an introduction that highlights the gap between textbook models of oligopoly and real-world complexities, such as economies of scale and product differentiation. Dixit then presents a simple duopoly model with one established firm and one potential entrant, assuming a competitive economy and quantity-setting behavior by firms. The analysis is conducted in two parts: Nash equilibrium and Stackelberg leadership. In the Nash equilibrium, the presence of fixed costs leads to discontinuous reaction functions, which can result in multiple equilibria. The classification of entry possibilities is based on the positions of critical points related to fixed costs and demand. Dixit shows that a greater absolute advantage in demand for the established firm makes entry harder, while lower cross-price effects with the potential entrant's products make entry easier. The paper also discusses extensions to the model, including the case of multiple established firms and potential entrants, and the introduction of dynamic strategies such as excess capacity. These extensions allow for a more nuanced understanding of entry barriers and the strategic interactions between firms. Finally, Dixit concludes by emphasizing the importance of distinguishing between absolute advantages in demand or cost and product differentiation in industrial economics, suggesting that these two aspects should not be conflated into a vague concept of product differentiation.This paper by Avinash Dixit, published in the Warwick Economic Research Papers series, presents a model of duopoly that incorporates economies of scale, product differentiation, and absolute advantages in cost or demand. The model aims to provide a unified theory of entry barriers by placing different forces that deter entry into a common framework. Dixit focuses on the new aspects that emerge when these features are included, particularly the impact of fixed costs and product differentiation on entry possibilities. The paper begins with an introduction that highlights the gap between textbook models of oligopoly and real-world complexities, such as economies of scale and product differentiation. Dixit then presents a simple duopoly model with one established firm and one potential entrant, assuming a competitive economy and quantity-setting behavior by firms. The analysis is conducted in two parts: Nash equilibrium and Stackelberg leadership. In the Nash equilibrium, the presence of fixed costs leads to discontinuous reaction functions, which can result in multiple equilibria. The classification of entry possibilities is based on the positions of critical points related to fixed costs and demand. Dixit shows that a greater absolute advantage in demand for the established firm makes entry harder, while lower cross-price effects with the potential entrant's products make entry easier. The paper also discusses extensions to the model, including the case of multiple established firms and potential entrants, and the introduction of dynamic strategies such as excess capacity. These extensions allow for a more nuanced understanding of entry barriers and the strategic interactions between firms. Finally, Dixit concludes by emphasizing the importance of distinguishing between absolute advantages in demand or cost and product differentiation in industrial economics, suggesting that these two aspects should not be conflated into a vague concept of product differentiation.