The Nature of Costs and the Number of Firms at Cournot Equilibrium.

Journal article

The paper analyzes the perfect equilibria of a two-stage entry/production game in a simple model with constant marginal costs, a fixed cost per firm, and Cournot behavior at the production stage. If fixed costs are not sunk, the range of equilibrium values for N, the number of firms, can be quite large. That range becomes smaller--with the lower values of N being eliminated--the more that fixed costs are sunk. Thus there is a sense in which sunk costs can rule out some less competitive equilibria, to the benefit of consumers and potential entrants, by enhancing the credibility of entry.

Authors: Vickers, J

• Journal: International Journal of Industrial Organization
• Volume: 7
• Publication date: 1989-01-01
• ISSN: 0167-7187
• Language: English