Coexistence of large firms and less efficient small firms under price competition with free entry

Makoto Yano

International Journal of Economic Theory, 2005, vol. 1, issue 3, 167-188

Abstract: This study constructs a game of technology selection and Bertrand‐like price competition in a market with free entry. It demonstrates the existence of a Nash equilibrium in which a small number of firms adopting a large‐scale technology coexist with, and charge a lower price than, a large number of firms adopting a small‐scale technology. In this equilibrium, both available technologies and resources are allocated efficiently. This result provides a new economic rationale for antitrust law in general and, in particular, the US Sherman Act, wchich regards free entry and price competition as of foremost importance for maintaining market quality.

Date: 2005
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https://doi.org/10.1111/j.1742-7363.2005.00011.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:1:y:2005:i:3:p:167-188

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International Journal of Economic Theory is currently edited by Kazuo Nishimura and Makoto Yano

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