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Exit, Reentry Costs, and Product Differentiation

Author

Listed:
  • Can Erutku

    (Glendon College, York University)

  • Yves Richelle

    (Université de Montréal)

Abstract

This paper examines whether exit favours maximal or minimal differentiation within an infinite horizon supergame with discounting played by three firms. With more than two firms, the problem of which firm exits the market is similar to a coalition formation one. Solving this coalition formation problem, we obtain that exit favours maximal differentiation when reentry is costless. When reentry is unprofitable, exit favours minimal (maximal) differentiation if firms' production capacity is large (small) as compared to the market size.

Suggested Citation

  • Can Erutku & Yves Richelle, 2013. "Exit, Reentry Costs, and Product Differentiation," Economics Bulletin, AccessEcon, vol. 33(1), pages 828-842.
    • Handle: RePEc:ebl:ecbull:eb-12-00861
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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I1-P81.pdf
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    More about this item

    Keywords

    Exit; Reentry Costs; Product Differentiation; Coalition Formation;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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