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On the existence of spatial monopolies under free entry

  • 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)

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999001.

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Date of creation: 01 Jan 1999
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Handle: RePEc:cor:louvco:1999001
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  1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  2. MACLEOD, W.B. & NORMAN, G. & THISSE, Jacques-François, . "Price discrimination and equilibrium in monopolistic competition," CORE Discussion Papers RP -1021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Novshek, William, 1980. "Equilibrium in simple spatial (or differentiated product) models," Journal of Economic Theory, Elsevier, vol. 22(2), pages 313-326, April.
  4. Norman, G. & Thisse, J.-F., . "Product variety and welfare under tough and soft pricing regimes," CORE Discussion Papers RP -1201, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
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