Oligopolistic Equilibrium and Financial Constraints

In this paper we provide a model of dynamic oligopoly in which \u85rms take into account the nancial constraints of all \u85rms. The study of the equilibria of our dynamic game leads to the concept of Bankruptcy-Free outputs (BF) in which no \u85rm can drive another \u85rm to bankruptcy without becoming bankrupt itself. For a duopoly with su ¢ cently patient \u85rms all equilibria yield BF outputs. When there are more than two \u85rms, outputs other than BF can be sustained as equilibria but the set of BF outputs is still useful in explaining the shape of the equilibrium set. Cournot one-shot equilibrium and joint pro\u85t maximization are more di ¢ cult to sustain as equilibria of our game than under the standard repeated games