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Endogenous Market Structures and Innovation

Author

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  • Federico Etro

    () (Department of Economics, University Of Venice, Ca� Foscari)

Abstract

One of the pioneering works on endogenous market structures, by Tandon (1984), has extended the standard Cournot model with linear demand to endogenous entry and sunk R&D costs to show that the endogenous number of firms is independent from the size of the market. I generalize the model in many directions and show that, as long as the exogenous fixed costs are positive, the endogenous market structure is naturally characterized by an inverted-U relation between market size and number of firms, in line with the celebrated hypothesis of Sutton (1991).

Suggested Citation

  • Federico Etro, 2010. "Endogenous Market Structures and Innovation," Working Papers 2010_29, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2010_29
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    References listed on IDEAS

    as
    1. Federico Etro & Michela Cella, 2013. "Equilibrium Principal-Agent Contracts: Competition and R&D Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 488-512, September.
    2. Bertoletti, Paolo & Poletti, Clara, 1996. "A Note on Endogenous Firm Efficiency in Cournot Models of Incomplete Information," Journal of Economic Theory, Elsevier, vol. 71(1), pages 303-310, October.
    3. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
    4. Piccolo, Salvatore & D'Amato, Marcello & Martina, Riccardo, 2008. "Product market competition and organizational slack under profit-target contracts," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1389-1406, November.
    5. Lockwood, Ben, 2000. "Production Externalities and Two-way Distortion in Principal-multi-agent Problems," Journal of Economic Theory, Elsevier, vol. 92(1), pages 142-166, May.
    6. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
    7. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    8. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    9. S. Lael Brainard & David Martimort, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 81-105.
    10. repec:adr:anecst:y:1994:i:34:p:03 is not listed on IDEAS
    11. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    12. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
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    1. repec:eee:touman:v:49:y:2015:i:c:p:119-137 is not listed on IDEAS

    More about this item

    Keywords

    Oligopoly; Endogenous entry; Sunk costs; RD investment;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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