Comparative statics in Cournot free entry equilibrium

Luis C. Corchón, Isabel Fradera

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8 Citations (Scopus)

Abstract

In this paper we study the effects of a change in an exogenous variable (the fixed cost or a parameter in the demand function) on the output and the number of active firms in a Symmetric Cournot Equilibrium with Free Entry (SCEFE). The results obtained here are different from those obtained in the Cournot model with a given number of firms. In particular, an increase in demand might yield a decrease in the output of the industry. We also show that any observation on prices, profits and number of firms is compatible with the assumption that the market is in a SCEFE. If fixed costs can be observed, there is a loose relationship between the profit rate and the number of active firms. This result is used as a warning against the use of the profit rate as a measure of an anticompetitive position and against the Structure-Conduct-Performance paradigm. © 2002 Elsevier Science B.V. All rights reserved.
Original languageEnglish
Pages (from-to)155-168
JournalMathematical Social Sciences
Volume44
Issue number2
DOIs
Publication statusPublished - 1 Nov 2002

Keywords

  • Anti-trust policy
  • Comparative statics
  • Entry
  • Rate of profits

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