Market Efficiency and Coalition Structures
AbstractWe consider a three-stage game in which symmetric firms decide whether to invest in a cost-reducing technology, then they have the possibility to merge (forming coalitions), and eventually, in the third stage, a Cournot oligopoly game is played by the resulting firms (coalitions). We show that, contrary to the existing literature, the monopoly market structure may fail to form even when the number of initial firms is just three. We then introduce a weighted sharing rule and show that a situation in which all firms acquire the cost-reducing asset cannot be sustained as a Subgame Perfect Equilibrium.
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Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 628.
Date of creation: 28 Mar 2007
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-31 (All new papers)
- NEP-COM-2007-03-31 (Industrial Competition)
- NEP-GTH-2007-03-31 (Game Theory)
- NEP-IND-2007-03-31 (Industrial Organization)
- NEP-MIC-2007-03-31 (Microeconomics)
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