Oligopolistic Equilibrium and Financial Constraints
Universitat Autònoma de Barcelona - Departament d’Economia i d’Història Econòmica
Luis C. Corchón
Universidad Carlos III de Madrid - Department of Economics
Osaka University - Graduate School of Economics; National Graduate Institute for Policy Studies (GRIPS)
December 12, 2012
In this paper we provide a model of dynamic oligopoly in which fi rms take into account the fi nancial constraints of all firms. The study of the equilibria of our dynamic game leads to the concept of Bankruptcy-Free outputs (BF) in which no firm can drive another fi rm to bankruptcy without becoming bankrupt itself. For a duopoly with sufficiently patient fi rms all equilibria yield BF outputs. When there are more than two fi rms, outputs other than BF can be sustained as equilibria but the set of BF outputs is still useful in explaining the shape of the equilibrium set. Cournot one-shot equilibrium and joint pro t maximization are more difficult to sustain as equilibria of our game than under the standard repeated games.
Number of Pages in PDF File: 30
Keywords: Financial Constraints, Bankruptcy, Firm Behavior, Dynamic Games
JEL Classification: D2, D4, L1, L2
Date posted: April 11, 2011 ; Last revised: January 20, 2013
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