Judo Economics in Markets with Multiple Firms
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.
|Date of creation:||Jul 2013|
|Contact details of provider:|| Postal: Universitätsplatz 2, Gebäude W und I, 39106 Magdeburg|
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- Daniel Cracau, 2013.
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130002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
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- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1994. "Capacity Precommitment as a Barrier to Entry:A Bertrand-Edgeworth Approach," Industrial Organization 9411002, EconWPA, revised 14 Nov 1994.
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- Abdolkarim Sadrieh & Daniel Cracau, 2013. "Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab," FEMM Working Papers 130001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
- Furth, D. & Kovenock, D., 1990.
"Price Leadership In A Duopoly With Capacity Constraints And Product Differentiation,"
Purdue University Economics Working Papers
992, Purdue University, Department of Economics.
- Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
- Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
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