Economics Seminar: Entry in Thin Markets

When?

Wednesday 3 November 2010, 16:00 to 17:15

Open to:

Public, Staff, Students

Speaker:

Dr Alex Dickson (University of Strathclyde)

Dr. Alex Dickson (University of Strathclyde)

"Entry in Thin Markets"

Abstract

The purpose of this paper is to study the effects of entry of additional firms into the market for a single commodity in which both sellers and buyers are permitted to interact strategically. It is shown that the market is quasi-competitive: the inclusion of an additional seller lowers the price and increases the volume of trade, as expected. Contrary to the conventional wisdom, however, it may be the case that existing sellers' profit increases. The conditions under which entry by new sellers raises equilibrium profits of existing sellers are derived, which depend in an intuitive way on the elasticity of a strategic analog of demand and the market share of existing sellers and encompass entirely standard economic environments. The analysis relies heavily on exploiting the aggregative properties of the game that is played.