Does market size matter?:a dynamic model of oligopolistic market structure, featuring costs of creating and maintaining a market position

Bloch, Harry and Eaton, Curtis and Rothschild, Robert (2013) Does market size matter?:a dynamic model of oligopolistic market structure, featuring costs of creating and maintaining a market position. Working Paper. Lancaster University, Department of Economics, Lancaster.

[img]
Preview
PDF
MarketSizeMatter.pdf - Submitted Version

Download (574kB)

Abstract

In their efforts to create a position in a market, and to maintain that position, firms make positioning investments of various sorts, in R&D, plant, advertising, and location, or more generally, in product development and maintenance. The heart of this paper is the hypothesis that the success of these positioning investments is not assured. In an environment where the success of positioning investments is stochastic, the positioning game played by firms that compete to serve a market is necessarily dynamic. We model the positioning and operating decisions of firms in an environment of this sort. When the market is large enough to support at least one active firm, the expected number of firms serving the market at a point in time is a nearly continuous function of market size, in sharp contrast to the familiar integer valued step function seen in classic models of market structure. As a result, equilibrium expected total surplus and expected consumer surplus are higher than standard non-stochastic models would suggest, especially in circumstances where the expected number of firms is small. This suggests that classic models of market structure are not always a sound guide for policy.

Item Type:
Monograph (Working Paper)
ID Code:
65604
Deposited By:
Deposited On:
08 Jul 2013 09:58
Refereed?:
No
Published?:
Published
Last Modified:
15 Jul 2020 01:43