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The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm

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  • Berck, Peter
  • Perloff, Jeffrey M.

Abstract

A low-cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations; however, the dominant firm will not predate (price below marginal cost). Since a dominant firm will not drive out fringe firms if they have myopic expectations it may be in the dominant firm's best interests to inform the fringe. The effects of governmental intervention on the optimal path and welfare are presented.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 12 (1988)
Issue (Month): 4 (November)
Pages: 659-678

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Handle: RePEc:eee:dyncon:v:12:y:1988:i:4:p:659-678

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Web page: http://www.elsevier.com/locate/jedc

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Cited by:
  1. Ashiya, M., 1998. "Weak Entrants are Welcome," ISER Discussion Paper 0468, Institute of Social and Economic Research, Osaka University.
  2. Susanne Wied-Nebbeling, 2007. "Fringe firms: Are they better off in a heterogeneous market?," Working Paper Series in Economics 31, University of Cologne, Department of Economics.
  3. Toxvaerd, Flavio, 2010. "Dynamic Limit Pricing," CEPR Discussion Papers 8104, C.E.P.R. Discussion Papers.
  4. Emin M. Dinlersoz, 2000. "Firm Organization and Retail Industry Dynamics," Econometric Society World Congress 2000 Contributed Papers 0005, Econometric Society.
  5. Holmes, Thomas J., 1996. "Can consumers benefit from a policy limiting the market share of a dominant firm?," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 365-387, May.

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