Free Entry, Market Size, And The Optimistic Stability
AbstractWe examine the long-run outcomes under free entry-exit when each firm not only takes account of the effects of her own entry-exit on the market structure but also takes full account of the effects due to other firms' simultaneous entry-exit. Adopting the framework of the theory of social situations (TOSS), we derive a unique set of stable outcomes, which is based only on two fundamental assumptions of the "firms-as-profit-maximizers" and the "free entry-exit," but not on any specific mode of play (i.e., a specification of how the players make their decisions, take actions within the market, and think of the other players' behavior). We compare the stable outcome with the long-run equilibria under the competitive mode, the Cournot-Nash mode, and the monopolistically competitive mode. We find that (i) each of these equilibria can be compatible with the stable outcome only if the market size is small and (ii) none of them can be compatible with the stable outcome if the market size is sufficiently large; Further, (iii), for almost all market size, the monopolistically competitive equilibrium is compatible with the stable outcome if the elasticity of substitution is sufficiently close to (but, greater than) unity. In a sense, when the market size is sufficiently large, these three modes of play are not consistent with two fundamental assumptions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.
Volume (Year): 09 (2007)
Issue (Month): 02 ()
Contact details of provider:
Web page: http://www.worldscinet.com/igtr/igtr.shtml
Find related papers by JEL classification:
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
- C0 - Mathematical and Quantitative Methods - - General
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).
If references are entirely missing, you can add them using this form.