Endogenous entry under Bertrand-Edgeworth and Cournot competition with capacity indivisibility
AbstractStrategic market interaction is modelled as a two-stage game where potential entrants choose capacities and active firms compete in prices or quantities. Due to capital indivisibility, the capacity choice is made from a finite grid. In either strategic setting, the equilibrium of the game depends on the size of total demand at a price equal to the minimum average cost. With a sufficiently large market, the long-run competitive price emerges at a subgame-perfect equilibrium of either game. Failing the large market condition, equilibrium outcomes are quite different in the two games (in contrast to Kreps and Scheinkman), and neither game reproduces the competitive equilibrium.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 480.
Date of creation: May 2006
Date of revision:
Entry; Bertrand-Edgeworth; Cournot; capacity indivisibility;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- 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-2006-05-13 (All new papers)
- NEP-COM-2006-05-13 (Industrial Competition)
- NEP-MIC-2006-05-13 (Microeconomics)
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