Judo Economics in Markets with Multiple Firms

Daniel Cracau and Benjamin Franz ()
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Benjamin Franz: University of Oxford, Mathematical Institute

No 130013, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: We study a sequential Bertrand game with one dominant market incumbent and multiple small entrants selling homogeneous products. Whilst the equilibrium for the case of a single entrant is well-known from Gelman and Salop (1983), we derive properties of the N-firm equilibrium and present an algorithm that can be used to calculate this equilibrium. Using this algorithm we derive the exact equilibrium for the cases of two and three small entrants. For more than three entrants only approximate results are possible. We use numerical results to gain further understanding of the equilibrium for an increasing number of firms and in particular for the case where N diverges to infinity. Similarly to the two-firm Judo equilibrium, we see that a capacity limitation for the small rms is necessary to achieve positive profits.

Keywords: Sequential Bertrand Competition; Judo Economics; N-firm oligopoly (search for similar items in EconPapers)
JEL-codes: D43 L11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_13.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:130013

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