The Sustainability Concept under Alternative Behavioral Assumptions

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.