The Effects of Entry in Thin Markets

Research output: Working paper

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Abstract

We consider entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. We show that the market is quasi-competitive, in that the inclusion of an additional seller lowers the price and increases the volume of trade, as expected. However, whilst buyers benefit from this change under reasonable conditions on preferences, we cannot conclude that sellers are always made worse off in the face of more intense competition, contrary to the conventional wisdom. We characterize the conditions under which entry by new sellers may raise the equilibrium profit of existing sellers, which will depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers, and encompass completely standard economic environments.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Number of pages22
Publication statusPublished - 12 Jul 2010

Publication series

NameStrathclyde Discussion Papers in Economics
PublisherUniversity of Strathclyde
Volume10-11

Keywords

  • markets
  • business
  • bilateral oligopoly
  • entry
  • comparative statics

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