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Endogenous Market Structures and Corporate Finance

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Author Info
Federico Etro ()

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Abstract

We characterize the optimal financial structure as a strategic de- vice to optimize the value of a firm competing in a market whose struc- ture is endogenous. Contrary to traditional results based on duopolies and depending on the form of competition, we show the general opti- mality of moderate debt financing whenever positive shocks increase the marginal profitability of strategies that reduce prices, indepen- dently from whether they are strategic susbtitutes or complements. We derive the general formulas for the optimal financial structure un- der Cournot and Bertrand competition with endogenous entry and cost uncertainty and extend the results in many directions.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper165.pdf
File Format: application/pdf
File Function: First version, 2009
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Publisher Info
Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 165.

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Length: 23 pages
Date of creation: Jul 2009
Date of revision: Jul 2009
Handle: RePEc:mib:wpaper:165

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Related research
Keywords: Financial structure; Debt; Modigliani-Miller theorem; Endogenous entry;

Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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This page was last updated on 2009-12-6.

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