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Price increase and stability with new entries in Cournot markets

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    Abstract

    It is widely accepted in the literature about the classical Cournot oligopoly model that the loss of quasi–competitiveness is linked, in the long run as new firms enter the market, to instability of the equilibrium. In this paper, though, we present a model in which a stable unique symmetric equilibrium is reached for any number of oligopolists as industry price increases with each new entry. Consequently, the suspicion that non–quasi–competitiveness implies, in the long run, instability is proved false.

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    File URL: http://www.econ.upf.edu/docs/papers/downloads/646.pdf
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    Bibliographic Info

    Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 646.

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    Date of creation: Oct 2002
    Date of revision: Jan 2012
    Handle: RePEc:upf:upfgen:646

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    Web page: http://www.econ.upf.edu/

    Related research

    Keywords: Cournot equilibrium; non-cooperative oligopoly; quasi-competitiveness; stability;

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    1. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 85-98, January.
    2. Szidarovszky, F. & Yakowitz, S., 1982. "Contributions to Cournot oligopoly theory," Journal of Economic Theory, Elsevier, vol. 28(1), pages 51-70, October.
    3. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    4. Ushio, Yoshiaki, 1983. "Cournot Equilibrium with Free Entry: The Case of Decreasing Average Cost Functions," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 347-54, April.
    5. 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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