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Market size, entry costs and free entry Cournot equilibrium

Author

Listed:
  • Krishnendu Ghosh Dastidar

    (Jawaharlal Nehru University)

  • Sugata Marjit

    (Indian Institute of Foreign Trade)

Abstract

We consider a free entry, symmetric cost, Cournot equilibrium in a homogeneous product market. There is a parameter A which is the index of the “market size” . If a firm decides to enter, it must incur set-up costs of F. We explore the following question: How do the number of firms, individual output and total output in a free entry equilibrium change with an increase in the market size and entry cost? Conventional wisdom suggests that these should increase with A and decrease with F. However, we show this may not be true. We use the implicit function theorem to provide a complete characterization. We also illustrate our results with specific examples.

Suggested Citation

  • Krishnendu Ghosh Dastidar & Sugata Marjit, 2022. "Market size, entry costs and free entry Cournot equilibrium," Journal of Economics, Springer, vol. 136(2), pages 97-114, July.
    • Handle: RePEc:kap:jeczfn:v:136:y:2022:i:2:d:10.1007_s00712-021-00769-1
    DOI: 10.1007/s00712-021-00769-1
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    References listed on IDEAS

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    11. Okumura, Yasunori, 2015. "Existence of free entry equilibrium in aggregative games with asymmetric agents," Economics Letters, Elsevier, vol. 127(C), pages 14-16.
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    Cited by:

    1. Marjit, Sugata & Das, Gouranga G., 2023. "Where have all Tech Layoffs gone? A Model of Two Worker Types with Outsourcing," GLO Discussion Paper Series 1338, Global Labor Organization (GLO).
    2. Sugata Marjit & Gouranga G. Das, 2023. "Where Have All Tech Layoffs Gone? A Model of Two Worker Types with Outsourcing," CESifo Working Paper Series 10686, CESifo.

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    More about this item

    Keywords

    Free entry; Cournot; Output; Firms;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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