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Existence, Uniqueness, and Symmetry of Free-Entry Cournot Equilibrium: The Importance of Market Size and Technoligy Choice

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Abstract

This article adds technology choice to a free-entry Cournot model with linear demand and constant marginal costs. Firms can choose from a discrete set of technologies. This simple framework yields non-existence of equilibrium, existence of multiple equilibria and equilibria in which ex-ante indentical firms choose different technoligies as possible outcomes. I provide a full characterization of the parameter sets for which these outcomes arise. The (non)-existence problem disappears if vertical market size is large. Non-existence is largely a ´small number´phenemenon. Asymetric equilibria emerge either because of indivisibilities or due to similarity of different technologies in terms of the average costs realized.

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  • Georg Götz, 2002. "Existence, Uniqueness, and Symmetry of Free-Entry Cournot Equilibrium: The Importance of Market Size and Technoligy Choice," Vienna Economics Papers 0214, University of Vienna, Department of Economics.
  • Handle: RePEc:vie:viennp:0214
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    1. Van Long, Ngo & Soubeyran, Antoine, 2000. "Existence and uniqueness of Cournot equilibrium: a contraction mapping approach," Economics Letters, Elsevier, vol. 67(3), pages 345-348, June.
    2. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    3. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2005. "Market Size Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 1-25, March.
    4. Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
    5. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
    6. Lambson, Val Eugene, 1987. "Is the Concentration-Profit Correlation Partly an Artifact of Lumpy Technology?," American Economic Review, American Economic Association, vol. 77(4), pages 731-733, September.
    7. Davis, Peter, 2006. "Estimation of quantity games in the presence of indivisibilities and heterogeneous firms," Journal of Econometrics, Elsevier, vol. 134(1), pages 187-214, September.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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