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An Equilibrium Selection Theory of Monopolization

Author

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  • Eckert, Andrew

    (University of Alberta, Department of Economics)

  • Klumpp, Tilman

    (University of Alberta, Department of Economics)

  • Su, Xuejuan

    (University of Alberta, Department of Economics)

Abstract

We develop a duopoly model in which firms compete for the market (e.g., investing in process innovation or product development) as well as in the market (e.g., setting quantities or prices). Competition for the market generates multiple equilibria that differ in the firms' investment levels, relative size, and profi tability. We show that monopolization that affects competition in the market can act as an equilibrium selection device in competition for the market. In particular, it eliminates equilibria that are undesirable for the monopolizing rm, while not generating new equilibria. This result complicates the task of determining whether a rm's dominance in a given market is the result of fair competition or unlawful monopolization. We discuss a number of implications for antitrust policy and litigation, and illustrate these by means of two well-known antitrust cases.

Suggested Citation

  • Eckert, Andrew & Klumpp, Tilman & Su, Xuejuan, 2016. "An Equilibrium Selection Theory of Monopolization," Working Papers 2016-13, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2016_013
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    References listed on IDEAS

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    Cited by:

    1. Klumpp, Tilman, 2021. "Stockpiling and Shortages (the “Toilet Paper Paper")," Working Papers 2021-2, University of Alberta, Department of Economics.
    2. Lamantia, Fabio & Pezzino, Mario & Tramontana, Fabio, 2018. "Dynamic analysis of discontinuous best response with innovation," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 120-133.
    3. Lamantia, Fabio & Pezzino, Mario & Scardamaglia, Bruno & Tramontana, Fabio, 2022. "A discontinuous model of duopoly with isoelastic demand and innovation costs," Chaos, Solitons & Fractals, Elsevier, vol. 158(C).

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    More about this item

    Keywords

    Monopolization; antitrust; multiple equilibria; indeterminacy; firm behavior;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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