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On the Effects of Entry in Cournot Markets

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Author Info

  • Rabah Amir

    (Institute of Economics, University of Copenhagen)

  • Val E. Lambson

    (Bringham Young University)

Abstract

In the framework of symmetric Cournot oligopoly, this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that, as the number of firms increases, the minimal and maximal equilibria lead to (i) decreasing industry price and increasing or decreasing per-firm output; and (ii) increasing industry price (and decreasing per-firm output.) In both cases, per-firm profits are decreasing. The analysis relies crucially on lattice-theoretic methods and yields general, unambiguous and easily interpretable conclusions of a global nature. As a byproduct of independent interest, new insight into existence of Cournot equilibrium is developed.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1998-06.

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Length: 30 pages
Date of creation: Sep 1998
Date of revision:
Publication status: Published in: Review of Economic Studies. April 2000; 67(2): 235-54
Handle: RePEc:kud:kuieci:1998-06

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Related research

Keywords: Cournot oligopoly; quasi-competitiveness; supermodular games; equilibrium comparative statics;

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References

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  1. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  2. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
  3. Novshek, William., 1984. "On the Existence of Cournot Equilibrium," Working Papers 517, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
  5. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  6. ROBERTS, John, . "On the existence of Cournot equilibrium without concave profit functions," CORE Discussion Papers RP -260, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  8. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  9. Novshek, William, 1984. "Finding All n-Firm Cournot Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 61-70, February.
  10. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  11. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August.
  12. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
  13. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
  14. E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
  15. Amir, Rabah, 1996. "Continuous Stochastic Games of Capital Accumulation with Convex Transitions," Games and Economic Behavior, Elsevier, vol. 15(2), pages 111-131, August.
  16. Cox, James C. & Walker, Mark, 1998. "Learning to play Cournot duopoly strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 141-161, August.
  17. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 473-86, April.
  18. Ruffin, R J, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 38(116), pages 493-502, October.
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