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Entry, Accuracy of Beliefs and Long-Run Survival in Cournot Games

21 Pages Posted: 5 Aug 2009 Last revised: 30 Jan 2010

Patrick L. Leoni

Kedge Business School

Date Written: August 3, 2009

Abstract

In a model that encompasses a general equilibrium framework, we consider a monopolist (a producer) with subjective beliefs that endogenously hedges against fluctuations in input prices in a complete market. We allow for entries and Cournot competition in this economy, and we study the determinants of long-run survivals for those firms. We introduce a notion of entropy of beliefs, and we use it to characterize the class of beliefs for which the monopolist eventually disappears almost surely. When disappearance occurs, the whole market power switches to the entrant making the most accurate predictions in our sense. The class of beliefs for which survival occurs is much broader than that of competitive settings; the Market Selection Hypothesis is valid in our setting but the odds of survival are significantly higher in our strategic framework.

Keywords: market selection hypothesis, survival, entrants, Cournot competition, heterogenous beliefs

JEL Classification: G3, D82, D84

Suggested Citation

Leoni, Patrick L., Entry, Accuracy of Beliefs and Long-Run Survival in Cournot Games (August 3, 2009). Available at SSRN: https://ssrn.com/abstract=1443178 or http://dx.doi.org/10.2139/ssrn.1443178

Patrick L. Leoni (Contact Author)

Kedge Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

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