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Fringe firms: Are they better off in a heterogeneous market?

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  • Susanne Wied-Nebbeling

Abstract

This paper analyzes a market with three firms. One of them is the dominant firm and the two others are fringe firms. The formulation of demand allows a comparison between price competition with heterogeneous and homogeneous products. Because a parameterization is required to assure that market size is the same in both scenarios, no general conclusions can be drawn. But it can be shown that in large markets with relatively inelastic demand for the fringe firms’ products and a cost advantage of the dominant firm, the fringe firms are better off if they produce a heterogeneous product.

Suggested Citation

  • Susanne Wied-Nebbeling, 2007. "Fringe firms: Are they better off in a heterogeneous market?," Working Paper Series in Economics 31, University of Cologne, Department of Economics.
    • Handle: RePEc:kls:series:0031
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    References listed on IDEAS

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    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(1), pages 107-120.
    2. Berck, Peter & Perloff, Jeffrey M., 1988. "The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm," Journal of Economic Dynamics and Control, Elsevier, vol. 12(4), pages 659-678, November.
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    6. Tasnadi, Attila, 2004. "On Forchheimer's model of dominant firm price leadership," Economics Letters, Elsevier, vol. 84(2), pages 275-279, August.
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    8. Blank, Larry & Kaserman, David L & Mayo, John W, 1998. "Dominant Firm Pricing with Competitive Entry and Regulation: The Case of IntraLATA Toll," Journal of Regulatory Economics, Springer, vol. 14(1), pages 35-53, July.
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    10. Geroski, Paul A. & Jacquemin, Alexis, 1984. "Dominant firms and their alleged decline," International Journal of Industrial Organization, Elsevier, vol. 2(1), pages 1-27, March.
    11. Robert Cherry, 2000. "The Dominant Firm Model Revisited," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(1), pages 89-95, February.
    12. Simon P. Anderson & André De Palma, 1988. "Spatial Price Discrimination with Heterogeneous Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 573-592.
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    Cited by:

    1. Ahmad Reza Saboori Memar, 2013. "Profitable Entry into an Unprofitable Market," MAGKS Papers on Economics 201306, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    dominant firm; competitive fringe; price competition; heterogeneous products;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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