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- Title
STOCHASTIC-DYNAMIC LIMITING PRICING: AN EMPIRICAL TEST.
- Authors
Masson, Robert T.; Shaanan, Joseph
- Abstract
The authors in this article present an analysis of some new implications in the theory of limit pricing and provide additional confirmation of limit pricing. These new models predict that monopolists in markets with high bafflers to entry will limit price to forestall entry, rather than charge a short-run maximizing price which would encourage entry and lead to lower future profits. They predict that as price exceeds the level at which entry is forestalling, the entry rate or its probability increases above zero. The new theories assume that when price is slightly above the entry-forestalling level, a flood of entry is not induced but a gradual increase in its rate or probability occurs. These models predict that many industries with high concentration would initially have high profits, but that entry would lead to reduced concentration and profits over time. These theories predict a linkage between the profit structure relationship and the relationships between the rate of entry and both barriers and pre-entry profits.
- Subjects
PRICING; STOCHASTIC integral equations; ECONOMIC models; PRICES; MATHEMATICAL models of economics; MONOPOLIES; ECONOMETRIC models; MARKET entry; INDUSTRIAL relations; MICROECONOMICS
- Publication
Review of Economics & Statistics, 1982, Vol 64, Issue 3, p413
- ISSN
0034-6535
- Publication type
Article
- DOI
10.2307/1925939