The Dynamic Annihilation of a Rational Competitive Fringe by a Low-cost Dominant Firm

Peter Berck and Jeffrey Perloff

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: A low-cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations; however, the dominant firm will not predate (price below marginal cost). Since a dominant firm will not drive out fringe firms if they have myopic expectations it may be in the dominant firm's best interests to inform the fringe. The effects of governmental intervention on the optimal path and welfare are presented.

Keywords: competition; industry; marketing; mathematical models (search for similar items in EconPapers)
Date: 1987-12-01
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Related works:
Journal Article: The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm (1988)
Working Paper: The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm (1987)
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