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Judo Economics in Markets with Multiple Firms

Author

Listed:
  • Daniel Cracau

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Benjamin Franz

    (University of Oxford, Mathematical Institute)

Abstract

We study a sequential Bertrand game with one dominant market incumbent and multiple small entrants selling homogeneous products. Whilst the equilibrium for the case of a single entrant is well-known from Gelman and Salop (1983), we derive properties of the N-firm equilibrium and present an algorithm that can be used to calculate this equilibrium. Using this algorithm we derive the exact equilibrium for the cases of two and three small entrants. For more than three entrants only approximate results are possible. We use numerical results to gain further understanding of the equilibrium for an increasing number of firms and in particular for the case where N diverges to infinity. Similarly to the two-firm Judo equilibrium, we see that a capacity limitation for the small rms is necessary to achieve positive profits.

Suggested Citation

  • Daniel Cracau & Benjamin Franz, 2013. "Judo Economics in Markets with Multiple Firms," FEMM Working Papers 130013, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:130013
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Sequential Bertrand Competition; Judo Economics; N-firm oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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