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Survival of Small Firms: Guerrilla Warfare

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  • Chaim Fershtman

Abstract

Duopolistic interaction between a small firm and a large established firm is considered and compared to guerrilla warfare, The paper investigates a “hit and run” equilibrium in which the small firm enters the market, stays there for several periods, exits, stays out for several periods, and then reenters. Occasionally there may be a price war (or retaliation), but the small firm may also exit voluntarily, thereby avoiding possible confrontation. The amount of time that the small firm stays in the market and the timing of the price wars do not follow any predictable pattern, which is part of the mixed strategies that both firms play in equilibrium.

Suggested Citation

  • Chaim Fershtman, 1996. "Survival of Small Firms: Guerrilla Warfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(1), pages 131-147, March.
    • Handle: RePEc:bla:jemstr:v:5:y:1996:i:1:p:131-147
    DOI: 10.1111/j.1430-9134.1996.00131.x
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    References listed on IDEAS

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    1. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    2. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
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