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Competing Teams in Large Markets: Free Entry Equilibrium with (Sub-)Optimal Contracts

Author

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  • Hideo Konishi

    (Boston College
    National Chengchi University, Taiwan)

  • Dimitar Simeonov

    (Bahçeşehir University)

Abstract

In this paper, we formalize a market with a large number of competing production teams following Alchian and Demsetz (1974). We allow for wide-spread externalities which can affect players’ payoffs. These externalities include changes in market conditions and pollutions, and may generate a variety of equilibrium outcomes. There are finite types of atomless players, who can form team-firms with finite memberships using available technologies. Given an arbitrary set of feasible partnership contracts for each team type, we consider free entry equilibrium as our equilibrium concept—in a free entry equilibrium, no team type can attract its members from other teams by proposing any implementable partnership contract. Furthermore, in a free entry equilibrium, players of the same type may have different payoffs—unequal treatment of equals. We show that as long as each firm type’s implementable payoff set is compact and continuous in externality variables, there exists a free entry equilibrium. We provide several applications of our results.

Suggested Citation

  • Hideo Konishi & Dimitar Simeonov, 2025. "Competing Teams in Large Markets: Free Entry Equilibrium with (Sub-)Optimal Contracts," Boston College Working Papers in Economics 1095, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:1095
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    References listed on IDEAS

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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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