Abstract
The ambition of the theory of imperfectly competitive markets is to explain the working of markets in which the issue of strategic interaction among firms is central. Our analysis of this problem will be based on equilibrium concepts borrowed from Game Theory. This research program arises several questions on its feasibility like the empirical relevance of the results, the substantial theoretical insights obtained in this way, etc. Unfortunately, most of these questions can not be answered in the short run. These Lecture Notes are launched in order to back this research strategy in the hope that it is meaningful, but about its final success nobody can tell. Another important question is if simpler models could deliver the essential insights offered by the theory of imperfectly competitive markets. This Introduction will be devoted to argue that, currently, there is no alternative to the approach presented in these Lecture Notes.
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The University of Alicante is located, alas, in San Vicente del Raspeig and not in the Explanada.
A similar example was pointed out to me by Joaquim Silvestre.
A more difficult task would be to explain why such price discrimination arises also in USA where airlines are very competitive, specially if we do not want to support the view that the realism of the assumptions does not matter.
The literature on market games have studied models in which agents are price-setters. The main conclusion of this literature is that the Walrasian equilibrium is sustained as a Nash equilibrium of a market game under very weak assumptions. However, unless additional assumptions are postulated, there are Nash equilibria other than the Walrasian (these equilibria correspond, roughly speaking, to fix-price equilibria). Thus, this literature provides only a weak support for the view that only Walrasian outcomes can be supported as Nash equilibria of market games with price-setting agents, see J. P. Benassy “On Competitive Market Mechanisms”, Econometrica, 1986, 54, pp. 869–877.
Here we mean perfect competition in partial equilibrium framework. We remark that most of the models presented in these Lecture Notes are in the spirit of partial equilibrium, even though they could be interpreted as general equilibrium models.
We also remark that the models presented in these Lectures yield other “paradoxes” worth to be noticed. Among them we single out the following ones: i) An identical increase in costs in a perfectly competitive and an oligopolistic market might increase less the price in the oligopolistic market than in the perfectly competitive market. ii) A monopolists facing potential competition might not be able to obtain positive profits. iii) To be a (Stackelberg) follower might be preferable to be a (Stackelberg) leader. iv) Equilibrium in the stock market makes impossible that all firms are owned by the same person. v) Even though entry deterrence may yield greater profits in the long run, non myopic, fully rational incumbents may accommodate entry in each period. vi) Rational consumers may elect unanimously a regulator who favors firms over consumers even if there is a pro-consumer candidate.
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© 1996 Springer-Verlag Berlin Heidelberg
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Corchón, L. (1996). Introduction. In: Theories of Imperfectly Competitive Markets. Lecture Notes in Economics and Mathematical Systems, vol 442. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-22531-8_1
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DOI: https://doi.org/10.1007/978-3-662-22531-8_1
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