Endogenous Market Structures and Innovation

13 Pages Posted: 13 Jan 2011

See all articles by Federico Etro

Federico Etro

Ca Foscari University of Venice

Date Written: December 1, 2010

Abstract

One of the pioneering works on endogenous market structures, by Tandon (1984), has extended the standard Cournot model with linear demand to endogenous entry and sunk R&D costs to show that the endogenous number of firms is independent from the size of the market. I generalize the model in many directions and show that, as long as the exogenous fixed costs are positive, the endogenous market structure is naturally characterized by an inverted-U relation between market size and number of firms, in line with the celebrated hypothesis of Sutton (1991).

Keywords: Oligopoly, Endogenous entry, Sunk costs, R&D investment

JEL Classification: L1

Suggested Citation

Etro, Federico, Endogenous Market Structures and Innovation (December 1, 2010). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 29, Available at SSRN: https://ssrn.com/abstract=1738962 or http://dx.doi.org/10.2139/ssrn.1738962

Federico Etro (Contact Author)

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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