Vulnerable Markets

25 Pages Posted: 6 Jul 2011

See all articles by David Mayer-Foulkes

David Mayer-Foulkes

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics; UCLA Blum Center on Poverty and Health in Latinamerica

Date Written: July 4, 2011

Abstract

A production market with given preferences, technology and competition technology is vulnerable if it admits both perfect competition and monopoly or oligopoly. Under decreasing returns, sunk costs combined with a potential for monopoly profits provide a sufficient basis for vulnerability. A large agent can establish monopoly by installing enough productive capacity. The monopolist deters entry by threatening to oversupply the market. The threat is credible if the future discount rate is low enough and if enough small players enter the market in the absence of punishment. Financial institutions can capture vulnerable markets for profit, reducing competition, efficiency and equity.

Keywords: Deterrent Monopoly, Competition, Endogenous Market Structure,

JEL Classification: D40, D50, G34, G38, L11

Suggested Citation

Mayer-Foulkes, David, Vulnerable Markets (July 4, 2011). Available at SSRN: https://ssrn.com/abstract=1878683 or http://dx.doi.org/10.2139/ssrn.1878683

David Mayer-Foulkes (Contact Author)

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics ( email )

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