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The Sustainability Concept under Alternative Behavioral Assumptions

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  • Gunter Knieps
  • Ingo Vogelsang

Abstract

The main results of the sustainability literature on natural monopolies (for example, Panzar and Willig (1977)), are shown to depend on the Bertrand conjecture. First, for the natural monopoly case we prove that industry configurations that are sustainable in the sense of Willig (1980) are equivalent to special kinds of Bertrand equilibria. Second, we show that sustainability under the Bertrand assumption does not necessarily imply sustainability under the Cournot assumption and vice versa. The general efficiency results that have been obtained for sustainable configurations no longer hold under the Cournot assumption. On the other hand, von Stackelberg behavior guarantees sustainability and an efficient industry structure, though not necessarily efficient pricing. Third, under the Bertrand assumption, entry can be deterred if sunk costs comprise a sufficiently large fraction of total costs, but this result fails to hold under the Cournot assumption.

Suggested Citation

  • Gunter Knieps & Ingo Vogelsang, 1982. "The Sustainability Concept under Alternative Behavioral Assumptions," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 234-241, Spring.
  • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:234-241
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    Cited by:

    1. Balletta, Luigi & Tesoriere, Antonio, 2016. "Strictly convex variable cost does not imply U-shaped average cost," Research in Economics, Elsevier, vol. 70(4), pages 766-770.
    2. Tesoriere, Antonio, 2017. "Stackelberg equilibrium with many leaders and followers. The case of zero fixed costs," Research in Economics, Elsevier, vol. 71(1), pages 102-117.
    3. repec:eee:mateco:v:73:y:2017:i:c:p:86-102 is not listed on IDEAS
    4. David Encaoua, 1986. "Réglementation et concurrence : quelques éléments de théorie économique," Économie et Prévision, Programme National Persée, vol. 76(5), pages 7-46.

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