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On the existence of spatial monopolies under free entry

Author

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  • STEINMETZ, Sébastien

    () (Laboratoire d'Econométrie de l'Ecole Polytechnique, 1 rue Descartes, 75005 Paris, France)

  • ZENOU, Yves

    () (CERAS, Ecole Nationale des Ponts et Chaussées, 28 rue des Saints-Pères, 75007 Paris, France)

Abstract

In a model of horizontal product differentiation, we show that local monopolies may exist under free entry when capital is perfectly mobile. In contrast both with the situation of restricted entry and with the zero-profit approach to free entry outcomes of Salop (1979), the unit profit rate of incumbent monopolists is positive and bounded above in equilibrium. The upper bound we find decreases with the size of unserved market areas and with the number of incumbent monopolists.

Suggested Citation

  • STEINMETZ, Sébastien & ZENOU, Yves, 1999. "On the existence of spatial monopolies under free entry," CORE Discussion Papers 1999001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1999001
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-1999.html
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    References listed on IDEAS

    as
    1. MacLeod, W.B. & Norman, G. & Thisse, J.-F., 1988. "Price discrimination and equilibrium in monopolistic competition," International Journal of Industrial Organization, Elsevier, vol. 6(4), pages 429-446.
    2. Norman, George & Thisse, Jacques-Francois, 1996. "Product Variety and Welfare under Tough and Soft Pricing Regimes," Economic Journal, Royal Economic Society, vol. 106(434), pages 76-91, January.
    3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    4. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
    5. Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
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    Citations

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    Cited by:

    1. Kugler, Maurice & Verdier, Thierry & Zenou, Yves, 2005. "Organized crime, corruption and punishment," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1639-1663, September.
    2. Zenou, Yves, 1999. "Comment lutter contre le chômage lorsque les travailleurs sont hétérogènes?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 519-536, mars-juin.

    More about this item

    Keywords

    horizontal product differentiation; entry; local monopolies; spatial contestability;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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