Endogenous Market Structures and Corporate Finance
Federico Etro ()
No 165, Working Papers from University of Milano-Bicocca, Department of Economics
We characterize the optimal financial structure as a strategic de- vice to optimize the value of a firm competing in a market whose struc- ture is endogenous. Contrary to traditional results based on duopolies and depending on the form of competition, we show the general opti- mality of moderate debt financing whenever positive shocks increase the marginal profitability of strategies that reduce prices, indepen- dently from whether they are strategic susbtitutes or complements. We derive the general formulas for the optimal financial structure un- der Cournot and Bertrand competition with endogenous entry and cost uncertainty and extend the results in many directions.
Keywords: Financial structure; Debt; Modigliani-Miller theorem; Endogenous entry (search for similar items in EconPapers)
JEL-codes: G31 G32 L11 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009-07, Revised 2009-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:165
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