IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-00243066.html
   My bibliography  Save this paper

Productive Efficiency and Contestable Markets

Author

Listed:
  • Jean-Pierre Ponssard

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper provides a new game theoretic model consistent with the premises of contestable markets. Two firms repeatedly compete for a natural monopoly position. The limit price of the incumbent is disciplined by a hit and run strategy of the entrant. In this model, contrarily to thewell known Maskin and Tirole model (1988): i) productive efficiency is encouraged, the more efficient firm gets a higher rent as an incumbent than the one the less efficient firm would, ii) rent dissipation does not necessarily prevails, even in the case of equally efficient firms. This opens the way to a reassessment of the merits of contestable markets.

Suggested Citation

  • Jean-Pierre Ponssard, 2007. "Productive Efficiency and Contestable Markets," Working Papers hal-00243066, HAL.
  • Handle: RePEc:hal:wpaper:hal-00243066
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00243066
    as

    Download full text from publisher

    File URL: https://hal.archives-ouvertes.fr/hal-00243066/document
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kamien, Morton I & Schwartz, Nancy L, 1971. "Limit Pricing and Uncertain Entry," Econometrica, Econometric Society, vol. 39(3), pages 441-454, May.
    2. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, vol. 3(3), pages 306-322, September.
    3. Farrell, Joseph, 1986. "How effective is potential competition?," Economics Letters, Elsevier, vol. 20(1), pages 67-70.
    4. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-1172, September.
    5. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    6. Wilson, Robert, 1992. "Strategic models of entry deterrence," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 10, pages 305-329 Elsevier.
    7. Ponssard, Jean-Pierre, 1991. "Forward induction and sunk costs give average cost pricing," Games and Economic Behavior, Elsevier, vol. 3(2), pages 221-236, May.
    8. Gromb, Denis & Ponssard, Jean-Pierre & Sevy, David, 1997. "Selection in Dynamic Entry Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 62-84, October.
    9. Lahmandi-Ayed, Rim & Ponssard, Jean-Pierre & Sevy, David, 1996. "Efficiency of dynamic quantity competition: A remark on Markovian equilibria," Economics Letters, Elsevier, vol. 50(2), pages 213-221, February.
    10. Pyatt, F Graham, 1971. "Profit Maximisation and the Threat of New Entry," Economic Journal, Royal Economic Society, vol. 81(322), pages 242-255, June.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00243066. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.