Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- 3 Static imperfect competition
- 4 Dynamic aspects of imperfect competition
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- Appendices
- Index
4 - Dynamic aspects of imperfect competition
from Part II - Market power
- Frontmatter
- Contents
- List of figures
- List of tables
- List of cases
- Preface
- Part I Getting started
- Part II Market power
- 3 Static imperfect competition
- 4 Dynamic aspects of imperfect competition
- Part III Sources of market power
- Part IV Pricing strategies and market segmentation
- Part V Product quality and information
- Part VI Theory of competition policy
- Part VII R&D and intellectual property
- Part VIII Networks, standards and systems
- Part IX Market intermediation
- Appendices
- Index
Summary
So far in this part, we have only considered models that are static, in the sense that firms simultaneously take their decision at a single point in time. This is clearly a simplified representation of reality but it helped us a great deal to understand the basic principles of oligopoly competition. Now, we want to extend the analysis by incorporating the time dimension. First, in Section 4.1, we examine situations in which firms do not take their decisions simultaneously but sequentially. One firm might indeed have the opportunity to choose its price or its quantity before the other firms in the industry, and it is important to investigate whether such opportunity benefits or hurts the firm. Second, in Section 4.2, we endogenize the number of firms in the industry; that is, assuming that the only impediment to entry is a fixed set-up cost, we analyse the entry decision that precedes price or quantity competition. Our main concern is to compare the number of firms that freely enter the industry, so as to exhaust all profit opportunities, with the number of firms that a social planner would choose. Third, in Section 4.3, we first distinguish endogenous from exogenous sunk cost industries and analyse how market size affects market concentration. We then sketch a stochastic dynamic model of firm turnover that allows us to analyse the effect of market size on the number of firms, their efficiency levels and firm turnover.
- Type
- Chapter
- Information
- Industrial OrganizationMarkets and Strategies, pp. 75 - 106Publisher: Cambridge University PressPrint publication year: 2010