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Coexistence of large firms and less efficient small firms under price competition with free entry

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  • Makoto Yano

Abstract

This study constructs a game of technology selection and Bertrand‐like price competition in a market with free entry. It demonstrates the existence of a Nash equilibrium in which a small number of firms adopting a large‐scale technology coexist with, and charge a lower price than, a large number of firms adopting a small‐scale technology. In this equilibrium, both available technologies and resources are allocated efficiently. This result provides a new economic rationale for antitrust law in general and, in particular, the US Sherman Act, wchich regards free entry and price competition as of foremost importance for maintaining market quality.

Suggested Citation

  • Makoto Yano, 2005. "Coexistence of large firms and less efficient small firms under price competition with free entry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(3), pages 167-188, September.
    • Handle: RePEc:bla:ijethy:v:1:y:2005:i:3:p:167-188
    DOI: 10.1111/j.1742-7363.2005.00011.x
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    References listed on IDEAS

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    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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    Cited by:

    1. Makoto Yano, 2006. "A price competition game under free entry," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 395-414, October.
    2. Emanuele Bacchiega & Jean J. Gabszewicz & Ornella Tarola, 2007. "Time‐to‐market in vertically differentiated industries," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 279-295, December.
    3. Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2007. "Free entry equilibria with positive profits: A unified approach to quantity and price competition games," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 75-94, June.
    4. Makoto Yano, 2009. "The Foundation Of Market Quality Economics," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 1-32, March.
    5. Makoto Yano & Takashi Komatsubara, 2018. "Price competition or price leadership," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1023-1057, December.
    6. Makoto Yano & Takashi Komatsubara, 2012. "Price Competition or Tacit Collusion," KIER Working Papers 807, Kyoto University, Institute of Economic Research.
    7. Anthony Creane, 2007. "Note on uncertainty and socially excessive entry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 329-334, December.

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