Endogenous entry under Bertrand-Edgeworth and Cournot competition with capacity indivisibility

Massimo De Francesco ()

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: Strategic market interaction is modelled as a two-stage game where potential entrants choose capacities and active firms compete in prices or quantities. Due to capital indivisibility, the capacity choice is made from a finite grid. In either strategic setting, the equilibrium of the game depends on the size of total demand at a price equal to the minimum average cost. With a sufficiently large market, the long-run competitive price emerges at a subgame-perfect equilibrium of either game. Failing the large market condition, equilibrium outcomes are quite different in the two games (in contrast to Kreps and Scheinkman), and neither game reproduces the competitive equilibrium.

Keywords: Entry; Bertrand-Edgeworth; Cournot; capacity indivisibility (search for similar items in EconPapers)
JEL-codes: D43 D44 L13 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:480

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