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The effects of entry in thin markets

Alex Dickson ()

No 1011, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: We consider entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. We show that the market is quasi-competitive, in that the inclusion of an additional sellerlowers the price and increases the volume of trade, as expected. However, whilst buyers benefit from this change under reasonable conditions on preferences, we cannot conclude that sellers are always made worse off in the face of more intense competition, contrary to the conventional wisdom. We characterize the conditions under which entry by new sellers may raise the equilibrium profit of existing sellers, which will depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass completely standard economic environments.

Keywords: bilateral oligopoly; entry; comparative statics. (search for similar items in EconPapers)
JEL-codes: C72 D21 D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-gth and nep-ind
Date: 2010-07
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