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Coexistence of large firms and less efficient small firms under price competition with free entry
Author(s) -
Yano Makoto
Publication year - 2005
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2005.00011.x
Subject(s) - free entry , economics , competition (biology) , nash equilibrium , microeconomics , industrial organization , bertrand paradox (economics) , economies of scale , quality (philosophy) , bertrand competition , oligopoly , cournot competition , ecology , philosophy , epistemology , biology
This study constructs a game of technology selection and Bertrand‐like price competition in a market with free entry. It demonstrates the existence of a Nash equilibrium in which a small number of firms adopting a large‐scale technology coexist with, and charge a lower price than, a large number of firms adopting a small‐scale technology. In this equilibrium, both available technologies and resources are allocated efficiently. This result provides a new economic rationale for antitrust law in general and, in particular, the US Sherman Act, wchich regards free entry and price competition as of foremost importance for maintaining market quality.