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|
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121, University of Milano-Bicocca, Department of Economics, revised 2007.
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18/95, Norwegian School of Economics and Business Administration-.
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- repec:rje:randje:v:37:y:2006:1:p:146-154 is not listed on IDEAS
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130002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
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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.
- B. Curtis Eaton & Roger Ware, 1987. "A Theory of Market Structure with Sequential Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 1-16, Spring.
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