Free entry under uncertainty

Mohamed Jellal () and François-Charles Wolff

MPRA Paper from University Library of Munich, Germany

Abstract: When focusing on firm’s risk-aversion in industry equilibrium, the number of firms may be either larger or smaller when comparing market equilibrium with and without price uncertainty. In this paper, we introduce risk-averse firms under cost uncertainty in a model of spatial differentiation and show that the impact of uncertainty will increase the number of firms in an industry. With increased uncertainty, the risk premium of the marginal buyer increases by more than the risk premium of the average buyer, so that the price increases by more than the risk premium. When turning to the free entry game, we find that the market generates too many firms.

Keywords: spatial differentiation; risk-averse firms; cost uncertainty (search for similar items in EconPapers)
JEL-codes: D4 D8 L11 L13 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Free Entry under Uncertainty (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38376

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