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Vulnerable Markets

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  • David Mayer-Foulkes

Abstract

A production market with given preferences, technology and competition technology is vulnerable if it admits both perfect competition and monopoly or oligopoly. Under decreasing returns, the combination of sunk costs and a potential for monopoly profits can be sufficient basis for vulnerability, allowing a large agent to establish monopoly by installing enough productive capacity. The monopolist deters entry by threatening to oversupply the market. The threat is credible if the future discount rate is low enough and if reputation dynamics do not invite a slow loss of market power. Vulnerable markets allow financial institutions to concentrate ownership for profit.

Suggested Citation

  • David Mayer-Foulkes, 2011. "Vulnerable Markets," DEGIT Conference Papers c016_040, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c016_040
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    File URL: http://degit.sam.sdu.dk/papers/degit_16/c016_040.pdf
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