Abstract

http://ssrn.com/abstract=1806055
 
 

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Oligopolistic Equilibrium and Financial Constraints


Carmen Bevia


Universitat Autònoma de Barcelona - Departament d’Economia i d’Història Econòmica

Luis C. Corchón


Universidad Carlos III de Madrid - Department of Economics

Yosuke Yasuda


Osaka University - Graduate School of Economics; National Graduate Institute for Policy Studies (GRIPS)

September 27, 2015


Abstract:     
We provide a model of dynamic duopoly in which firms take into account the financial 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 firm to bankruptcy without becoming bankrupt itself. We show that, in some cases, Cournot outputs are not a Markovian subgame perfect equilibrium because if these outputs were set, a firm may have incentives to ruin others. In these cases, standard trigger strategies in which collusion is sustained by infinite reversion to Cournot outputs cannot be used. We show that there is a Markov subgame perfect equilibrium in mixed strategies and study its properties. Predation occurs in equilibrium with a positive probability. Finally we adapt the folk theorem to our framework and show that it holds when minimax is taken over the BF outputs

Number of Pages in PDF File: 33

Keywords: Financial Constraints, Bankruptcy, Firm Behavior, Dynamic Games

JEL Classification: D2, D4, L1, L2


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Date posted: April 11, 2011 ; Last revised: September 28, 2015

Suggested Citation

Bevia, Carmen and Corchón, Luis C. and Yasuda, Yosuke, Oligopolistic Equilibrium and Financial Constraints (September 27, 2015). Available at SSRN: http://ssrn.com/abstract=1806055 or http://dx.doi.org/10.2139/ssrn.1806055

Contact Information

Carmen Bevia
Universitat Autònoma de Barcelona - Departament d’Economia i d’Història Econòmica ( email )
Edifici B - Campus Bellaterra
Barcelona, 08193
Spain
935812190 (Phone)
935812012 (Fax)
Luis Carlos Corchón Diaz
Universidad Carlos III de Madrid - Department of Economics ( email )
Calle Madrid 126
Getafe, 28903
Spain
Yosuke Yasuda (Contact Author)
Osaka University - Graduate School of Economics ( email )
1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan
National Graduate Institute for Policy Studies (GRIPS) ( email )
7-22-1 Roppongi, Minato-ku
Tokyo, Tokyo 106-8677
Japan
HOME PAGE: http://https://sites.google.com/site/yosukeyasuda/Home
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