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Intertemporal market division:: A case of alternating monopoly

Listed author(s):
  • Herings, P. Jean-Jacques
  • Peeters, Ronald
  • Schinkel, Maarten Pieter

In dynamic entry-and-exit models, common understanding is that potential entrants will enter into the market up to the point where all excess profits are eroded. Dominant incumbent positions are possible only under specific circumstances, such as the presence of substantial barriers to entry, or when incumbents can credibly threaten to punish rivals with losses upon entry. In this paper, we report on an equilibrium with market dominance that exists in a simple two-firm model that features neither entry barriers nor punishment strategies. this equilibrium induces an alternating monopoly - despite the fact that the model also sustains a Cournot duopoly. Even when initially both firms are active in the market, an alternating monopoly reveals itself rather quickly. Moreover, the alternating monopoly equilibrium Pareto dominates the Cournot equilibrium - as it is close to the cartel outcom.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 5 (July)
Pages: 1207-1223

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Handle: RePEc:eee:eecrev:v:49:y:2005:i:5:p:1207-1223
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Amir, Rabah & Lambson, Val E., 2003. "Entry, exit, and imperfect competition in the long run," Journal of Economic Theory, Elsevier, vol. 110(1), pages 191-203, May.
  2. Dasgupta, P. & Stiglitz, J. E., 1988. "Potential competition, actual competition, and economic welfare," European Economic Review, Elsevier, vol. 32(2-3), pages 569-577, March.
  3. Sally M. Davies, 1991. "Dynamic Price Competition, Briefly Sunk Costs, and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 519-530, Winter.
  4. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
  5. Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
  6. Hans Haller & Roger Lagunoff, 2000. "Genericity and Markovian Behavior in Stochastic Games," Econometrica, Econometric Society, vol. 68(5), pages 1231-1248, September.
  7. Audretsch, David B. & Baumol, William J. & Burke, Andrew E., 2001. "Competition policy in dynamic markets," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 613-634, April.
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