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Contestability and the indeterminacy of free entry equilibria

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  • d’ASPREMONT, Claude

    ()
    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • DOS SANTOS FERREIRA, Rodolphe

    (BETA, Université Louis Pasteur, Strasbourg, France)

  • GERARD-VARET, Louis-André

    (GREQAM, Ecole des Hautes Etudes en Sciences Sociales, Marseille, France)

Abstract

A general notion of market perfect contestability is introduced. It coincides with the definition given by Baumol et al. under Bertrand competition, but is compatible with other forms of competition : Cournot competition as well as monopolistic competition. Using this notion, we illustrate the fact that the number of active firms in free entry equilibrium may be largely indeterminate and different levels of positive profits may in many cases be sustained. This is shown to be true, in spite of market perfect contestability, either under Cournot competition or under product differentiation. Examples are given for both cases. Appropriate conditions of increasing returns are required.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997073.

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Date of creation: 01 Oct 1997
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Handle: RePEc:cor:louvco:1997073

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Cited by:
  1. Germán Coloma, 2010. "El número óptimo de empresas bajo competencia de Bertrand," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 189-205, December.
  2. AMIR, Rabah, 2003. "Market structure, scale economies and industry performance," CORE Discussion Papers 2003065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2007. "Free entry equilibria with positive profits: A unified approach to quantity and price competition games," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 75-94.
  4. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2003. "Business Cycles with Free Entry Ruled by Animal Spirits," CEPR Discussion Papers 3919, C.E.P.R. Discussion Papers.
  5. Rodolphe Dos Santos Ferreira & Frederic Dufourt, 2006. "Free entry and business cycles under the influence of animal spirits," Post-Print halshs-00789030, HAL.

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