Free entry equilibria with positive profits: A unified approach to quantity and price competition games

Rodolphe Dos Santos Ferreira and Frédéric Dufourt

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Abstract: Free entry equilibria are usually characterized by the zero profit condition. We plead instead for a strict application of the Nash equilibrium concept to a symmetric simultaneous game played by actual and potential entrants, producing under decreasing average cost. Equilibrium is then typically indeterminate, with a number of active firms varying between an upper bound imposed by profitability and a lower bound required by sustainability. We use a canonical model with strategies represented by prices, although covering standard regimes of quantity and price competition, to show that in equilibrium the critical (profit maximizing) price must lie between the break-even and the limit prices.

Keywords: Free entry equilibrium; Zero-profit condition; Oligopolistic competition (search for similar items in EconPapers)
Date: 2007-05-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00796163v1
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Published in International Journal of Economic Theory, 2007, 3 (2), pp.75-94. ⟨10.1111/j.1742-7363.2007.00048.x⟩

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Journal Article: Free entry equilibria with positive profits: A unified approach to quantity and price competition games (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00796163

DOI: 10.1111/j.1742-7363.2007.00048.x

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