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Existence, Uniqueness, and Symmetry of Free-Entry Cournot Equilibrium: The Importance of Market Size and Technoligy Choice

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Georg Götz ()

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Abstract

This article adds technology choice to a free-entry Cournot model with linear demand and constant marginal costs. Firms can choose from a discrete set of technologies. This simple framework yields non-existence of equilibrium, existence of multiple equilibria and equilibria in which ex-ante indentical firms choose different technoligies as possible outcomes. I provide a full characterization of the parameter sets for which these outcomes arise. The (non)-existence problem disappears if vertical market size is large. Non-existence is largely a ´small number´phenemenon. Asymetric equilibria emerge either because of indivisibilities or due to similarity of different technologies in terms of the average costs realized.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0214.

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Date of creation: Nov 2002
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Handle: RePEc:vie:viennp:0214

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Find related papers by JEL classification:
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

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  1. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2002. "Market Size Matters," NBER Working Papers 9113, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September. [Downloadable!]
    Other versions:
  3. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-93, June. [Downloadable!] (restricted)
  4. Van Long, Ngo & Soubeyran, Antoine, 2000. "Existence and uniqueness of Cournot equilibrium: a contraction mapping approach," Economics Letters, Elsevier, vol. 67(3), pages 345-348, June. [Downloadable!] (restricted)
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  5. Davis, Peter, 2006. "Estimation of quantity games in the presence of indivisibilities and heterogeneous firms," Journal of Econometrics, Elsevier, vol. 134(1), pages 187-214, September. [Downloadable!] (restricted)
  6. Lambson, Val Eugene, 1987. "Is the Concentration-Profit Correlation Partly an Artifact of Lumpy Technology?," American Economic Review, American Economic Association, vol. 77(4), pages 731-33, September. [Downloadable!] (restricted)
  7. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring. [Downloadable!] (restricted)
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