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Equilibria in an infinite horizon game with an incumbent, entry and switching costs
Author(s) -
Biglaiser Gary,
Crémer Jacques
Publication year - 2011
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.1742-7363.2010.00150.x
Subject(s) - economics , microeconomics , production (economics) , set (abstract data type) , interval (graph theory) , time horizon , mathematical economics , mathematics , computer science , finance , combinatorics , programming language
We consider an infinite horizon game in which a consumer incurs a switching cost when changing supplier. There is an incumbent firm at the beginning of the game, and a new entrant in each period, all with a production cost of 0. We identify the set of possible profits of the incumbent when the common discount rate of all the agents is greater than 1/2: it is the interval [0, σ/(1 − δ)] . There exist equilibria in which the incumbent sells the good to the consumer in every period at any price in [0, σ] . The result also holds with several entrants and several consumers.