Fringe firms: Are they better off in a heterogeneous market?

This paper analyzes a market with three firms. One of them is the dominant firm and the two others are fringe firms. The formulation of demand allows a comparison between price competition with heterogeneous and homogeneous products. Because a parameterization is required to assure that market size is the same in both scenarios, no general conclusions can be drawn. But it can be shown that in large markets with relatively inelastic demand for the fringe firms’ products and a cost advantage of the dominant firm, the fringe firms are better off if they produce a heterogeneous product.dominant firm, competitive fringe, price competition, heterogeneous products

A Puzzling Story: The Cyclical Behavior of Price-cost Margins.

Some recent empirical studies reveal countercyclical price-cost margins. From a microeconomic point of view this is not plausible because for the overwhelming number of industries, profits are highest in boom. As indicators of profitability price-cost margins should be procyclical. However, it will be shown that a margin relying on marginal cost can behave countercyclically or remains constant even with procyclical profits.A margin based on average cost is a better indicator of the development of profits. Therefore, empirical analysts should not regard different definitions of price-cost margins as equivalent.Price-cost margins, profit indicators, demand variations and pricing