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Contestability and the Indeterminacy of Free Entry Equilibria

Author

Listed:
  • D'Aspremont, C.
  • Dos Santos Ferreira, R.
  • Gerard-Varet, L.A.

Abstract

This note illustrates the fact that the number of active firms in free entry equilibrium may be largely indeterminate and different levels of positive profits may in many cases be sustained. This is shown to be true, in spite of market contestability, either under Cournot competition or under product differentiation. Examples are given for both cases. Appropriate conditions of increasing returns are required.

Suggested Citation

  • D'Aspremont, C. & Dos Santos Ferreira, R. & Gerard-Varet, L.A., 1996. "Contestability and the Indeterminacy of Free Entry Equilibria," G.R.E.Q.A.M. 96a16, Universite Aix-Marseille III.
    • Handle: RePEc:fth:aixmeq:96a16
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    Cited by:

    1. Rabah Amir, "undated". "Market Structure, Scale Economies and Industry Performance," CIE Discussion Papers 2000-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    2. Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2007. "Free entry equilibria with positive profits: A unified approach to quantity and price competition games," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 75-94, June.
    3. d’Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2017. "The Dixit–Stiglitz economy with a ‘small group’ of firms: A simple and robust equilibrium markup formula," Research in Economics, Elsevier, vol. 71(4), pages 729-739.
    4. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2008. "Business cycles with free entry ruled by animal spirits," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3502-3519, November.
    5. Dos Santos Ferreira, Rodolphe & Dufourt, Frederic, 2006. "Free entry and business cycles under the influence of animal spirits," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 311-328, March.
    6. Germán Coloma, 2010. "El número óptimo de empresas bajo competencia de Bertrand," Estudios de Economia, University of Chile, Department of Economics, vol. 37(2 Year 20), pages 189-205, December.
    7. Frederic Dufourt & Rodolphe Dos Santos Ferreira, 2006. "Indeterminacy of Free Entry Equilibria: General Approach and Macroeconomic Applications," EcoMod2006 272100021, EcoMod.

    More about this item

    Keywords

    OLIGOPOLIES; GENERAL EQUILIBRIUM;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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