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Comparative Statics in Cournot Free Entry Equilibrium

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URI: http://hdl.handle.net/10016/3854
ISSN: 0165-4896
DOI: 10.1016/S0165-4896(02)00026-4
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CORCHON_2002_44_2_ps.pdf (351.79 KB)
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2002
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Elsevier
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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.
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Entry, Comparative statics, Rate of profits, Anti-trust policy
Bibliographic citation
Comparative Statics in Cournot Free Entry Equilibrium". Mathematical Social Sciences. 2002, vol. 44, nº 2, p. 155-168
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