The effects of entry in thin markets

Alex Dickson

Research output: Working paper

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.
LanguageEnglish
Publication statusUnpublished - 2010

Fingerprint

Seller
Thin markets
Buyers
Economic environment
Wisdom
Commodities
Market share
Elasticity
Profit
Inclusion

Keywords

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

Cite this

Dickson, Alex. / The effects of entry in thin markets. 2010.
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Dickson, A 2010 'The effects of entry in thin markets'.

The effects of entry in thin markets. / Dickson, Alex.

2010.

Research output: Working paper

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AB - 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.

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KW - bilateral oligopoly

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KW - comparative statics

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Dickson A. The effects of entry in thin markets. 2010.

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