The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm
A low-cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations; however, the dominant firm will not predate (price below marginal cost). Since a dominant firm will not drive out fringe firms if they have myopic expectations it may be in the dominant firm's best interests to inform the fringe. The effects of governmental intervention on the optimal path and welfare are presented.
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- Kamien, Morton I & Schwartz, Nancy L, 1971. "Limit Pricing and Uncertain Entry," Econometrica, Econometric Society, vol. 39(3), pages 441-454, May.
- Therese Flaherty, M., 1980. "Dynamic limit pricing, barriers to entry, and rational firms," Journal of Economic Theory, Elsevier, vol. 23(2), pages 160-182, October.
- De Bondt, Raymond R, 1976. "Limit Pricing, Uncertain Entry, and the Entry Lag," Econometrica, Econometric Society, vol. 44(5), pages 939-946, September.