Table of Contents
Journal of Industrial Mathematics
Volume 2014 (2014), Article ID 216473, 8 pages
http://dx.doi.org/10.1155/2014/216473
Research Article

Judo Economics in Markets with Multiple Firms

1Faculty of Economics and Management, University of Magdeburg, Universitätsplatz 2, 39106 Magdeburg, Germany
2Mathematical Institute, University of Oxford, 24-29 St Giles’, Oxford OX1 3LB, UK

Received 5 May 2014; Revised 22 July 2014; Accepted 9 October 2014; Published 13 November 2014

Academic Editor: Domenico Vitulano

Copyright © 2014 Daniel Cracau and Benjamin Franz. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We study a sequential Bertrand game with one dominant market incumbent and multiple small entrants selling homogeneous products. Whilst the equilibrium for the case of a single entrant is well known from Gelman and Salop (1983), we derive properties of the -firm equilibrium and present an algorithm that can be used to calculate this equilibrium. The algorithm is based on a recursive manipulation of polynomials that derive the optimisation problem that each of the market entrants is facing. Using this algorithm we derive the exact equilibrium for the cases of two and three small entrants. For more than three entrants only approximate results are possible. We use numerical results to gain further understanding of the equilibrium for an increasing number of firms and in particular for the case where diverges to infinity. Similarly to the two-firm Judo equilibrium, we see that a capacity limitation for the small firms is necessary to achieve positive profits.