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Layout of a New Industry: From Oligopoly to Competition
Umeå University, Faculty of Social Sciences, Centre for Regional Science (CERUM).
2005 (English)In: Pure Mathematics and Applications, ISSN 1218-4586, Vol. 16, no 4, 475-492 p.Article in journal (Refereed) Published
Abstract [en]

Oligopoly models with constant marginal costs for the competitors tend to produce destabilization of the Cournot equilibrium point when the number of competitors increases. It therefore becomes difficult to explain how an oligopoly can evolve into perfect competition through an increase in the number of competitors. In the present study it is explored how cost functions with built in capacity limits can eliminate this problem. It is also shown how such cost functions can be derived from CES functions when the input of capital is fixed through an act of investment. It turns out that the durability of capital equipment is what is needed to stabilize the system, and so make it possible for an oligopoly to seamlessly transform into a competitive equilibrium.

Place, publisher, year, edition, pages
Budapest: SAAS Publishing , 2005. Vol. 16, no 4, 475-492 p.
National Category
URN: urn:nbn:se:umu:diva-13741OAI: diva2:153412
Available from: 2008-03-31 Created: 2008-03-31Bibliographically approved

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Puu, Tönu
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