Contestability and the indeterminacy of free entry equilibria
AbstractA 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 InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1997073.
Date of creation: 01 Oct 1997
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Other versions of this item:
- Claude D’Aspremont & Rodolphe Dos Santos Ferreira & Louis-Andre Gerard-Varet, 2000. "Contestability and the Indeterminacy of Free-Entry Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 51(1), pages 72-83, 03.
- D'Aspremont, C. & Dos Santos Ferreira, R. & Gerard-Varet, L.A., 1996. "Contestability and the Indeterminacy of Free Entry Equilibria," G.R.E.Q.A.M. 96a16, Universite Aix-Marseille III.
- d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Contestability and the indeterminacy of free-entry equilibria," CORE Discussion Papers RP -1452, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- 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.
- Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2007. "Free entry equilibria with positive profits: A unified approach to quantity and price competition games," Post-Print halshs-00796163, HAL.
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"Market structure, scale economies and industry performance,"
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2003065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2003.
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- Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2008. "Business cycles with free entry ruled by animal spirits," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3502-3519, November.
- Rodolphe Dos Santos Ferreira & Frederic Dufourt, 2006.
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- Dos Santos Ferreira, Rodolphe & Dufourt, Frederic, 2006. "Free entry and business cycles under the influence of animal spirits," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 311-328, March.
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