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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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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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  • Georg Götz, 2002. "Existence, Uniqueness, and Symmetry of Free-Entry Cournot Equilibrium: The Importance of Market Size and Technoligy Choice," Vienna Economics Papers vie0214, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0214
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    1. Elberfeld Walter & Götz Georg, 2002. "Market Size, Technology Choice, and Market Structure," German Economic Review, De Gruyter, vol. 3(1), pages 25-41, February.
    2. William Novshek, 1985. "On the Existence of Cournot Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 85-98.
    3. 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.
    4. Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
    5. Neumann, Manfred & Weigand, Jurgen & Gross, Alexandra & Munter, Markus Thomas, 2001. "Market size, fixed costs and horizontal concentration," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 823-840, April.
    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 731-733, September.
    7. Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1993. "Symmetric Cournot Oligopoly and Economic Welfare: A Synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 43-59, January.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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