On the existence of the competitive equilibrium in Grossman and Shapiro (1984)

Anthony Creane

MPRA Paper from University Library of Munich, Germany

Abstract: In their seminal paper, Grossman and Shapiro (1984) assume that it is not profitable for a firm to deviate to the supercompetitive price of Salop (1979). In this paper, it is shown that this assumption is violated if, roughly, each firm reaches less than half of all consumers unless it is a duopoly. This implies that most of the simulations in Grossman and Shapiro (1984) are not actually equilibria. More importantly, this implies that for their equilibrium to exist nearly all consumers must receive at least one ad. For example, with more than four firms in the market, at least 96% of the consumers must receive at least one ad, and the percentage increases with the number of firms.

Keywords: informative advertising; existence of equilibrium (search for similar items in EconPapers)
JEL-codes: D83 L13 L15 (search for similar items in EconPapers)
Date: 2020-07-26
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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