The effects of entry in thin markets
AbstractWe consider entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. We show that the market is quasi-competitive, in that the inclusion of an additional sellerlowers the price and increases the volume of trade, as expected. However, whilst buyers benefit from this change under reasonable conditions on preferences, we cannot conclude that sellers are always made worse off in the face of more intense competition, contrary to the conventional wisdom. We characterize the conditions under which entry by new sellers may raise the equilibrium profit of existing sellers, which will depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass completely standard economic environments.
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Bibliographic InfoPaper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1011.
Length: 21 pages
Date of creation: Jul 2010
Date of revision:
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bilateral oligopoly; entry; comparative statics.;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-BEC-2010-08-21 (Business Economics)
- NEP-GTH-2010-08-21 (Game Theory)
- NEP-IND-2010-08-21 (Industrial Organization)
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