×

The layout of a new industry: from oligopoly to competition. (English) Zbl 1135.37345

Summary: Oligopoly models with constant marginal costs for the competitors tend to produce destabilization of the Cournot equilibrium point when the number of competitors increases. It therefore becomes difficult to explain how an oligopoly can evolve into perfect competition through an increase in the number of competitors. In the present study it is explored how cost functions with built in capacity limits can eliminate this problem. It is also shown how such cost functions can be derived from CES functions when the input of capital is fixed through an act of investment. It turns out that the durability of capital equipment is what is needed to stabilize the system, and so make it possible for an oligopoly to seamlessly transform into a competitive equilibrium.

MSC:

37N40 Dynamical systems in optimization and economics
PDFBibTeX XMLCite