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Productive Efficiency and Contestable Markets

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  • Jean-Pierre Ponssard

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper provides a new game theoretic model consistent with the premises of contestable markets. Two firms repeatedly compete for a natural monopoly position. The limit price of the incumbent is disciplined by a hit and run strategy of the entrant. In this model, contrarily to thewell known Maskin and Tirole model (1988): i) productive efficiency is encouraged, the more efficient firm gets a higher rent as an incumbent than the one the less efficient firm would, ii) rent dissipation does not necessarily prevails, even in the case of equally efficient firms. This opens the way to a reassessment of the merits of contestable markets.

Suggested Citation

  • Jean-Pierre Ponssard, 2007. "Productive Efficiency and Contestable Markets," Working Papers hal-00243066, HAL.
    • Handle: RePEc:hal:wpaper:hal-00243066
    Note: View the original document on HAL open archive server: https://hal.science/hal-00243066
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    References listed on IDEAS

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