Dynamic Oligopolistic Competition and Quasi-Competitive Behavior

Abstract

Many real world markets exhibit features of imperfect competition, most likely oligopolistic structures. Since oligopolistic markets generate welfare losses to society, they are the focus of regulatory and/or procompetitive actions. One popular action against oligopolistic markets structures is the provision of free access into these markets. In this paper we study the implications of free market entry on the equilibrium price in the industry. In particular we demonstrate that independent of the corresponding market game (i.e. whether firms play an open-loop or a Markov game) the equilibrium price converges to the competitive level as the number of firms increases in the market. This quasi-competitive behavior holds irrespective of the time horizon of the game, i.e. whether firms have a finite or an infinite horizon.