Logo
Munich Personal RePEc Archive

On the existence of the competitive equilibrium in Grossman and Shapiro (1984)

Creane, Anthony (2020): On the existence of the competitive equilibrium in Grossman and Shapiro (1984).

[thumbnail of MPRA_paper_102074.pdf]
Preview
PDF
MPRA_paper_102074.pdf

Download (374kB) | Preview

Abstract

In their seminal paper, Grossman and Shapiro (1984) assume that it is not profitable for a firm to deviate to the supercompetitive price of Salop (1979). In this paper, it is shown that this assumption is violated if, roughly, each firm reaches less than half of all consumers unless it is a duopoly. This implies that most of the simulations in Grossman and Shapiro (1984) are not actually equilibria. More importantly, this implies that for their equilibrium to exist nearly all consumers must receive at least one ad. For example, with more than four firms in the market, at least 96% of the consumers must receive at least one ad, and the percentage increases with the number of firms.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.