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Freedom of entry and the existence of pure profit.

Опубликовано на портале: 07-02-2003
Economic Journal. 1978.  Vol. 88. No. 351. P. 455-69. 
We have demonstrated that zero pure profit is not a necessary condition of free-entry equilibrium in a model in which the market is spatially extended and longrun cost curves decline over some initial range. We have shown that neither price competition among existing firms nor the entry of new firms will necessarily drive profits to zero. This is true even when firms assume that they can cut their own price without reaction from their competitors, and when new entrants rationally calculate whether or not their entry will force existing firms to relocate. We have further shown, in a specific example, that rates of return on capital of up to twice the competitive rate are possible in free-entry equilibrium. The model of this paper is formulated in terms of geographical differentiation among firms. There would seem, however, to be significant applications to product differentiation, where firms sell products with different locations in characteristics space, and a new product fitting in between two established ones must expect a market significantly smaller than those obtained by "neighbouring" products before entry. For a discussion of some of the issues involved in handling monopolistic competition in characteristic space see Archibald and Kosenbluth (1975) and for a practical application that uses some of the properties developed in our model see Schmalensee (1977). [Авторский текст]

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