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Barcelona GSE Working Paper No. 547

Title: Oligopolistic Equilibrium and Financial Constraints
Authors: Carmen Beviá, Luis C. Corchón, and Yosuke Yasuda
Date: 12-04-2011
Keywords: Financial Constraints, Bankruptcy, Firm Behavior, Dynamic Games
JEL Codes: D2, D4, L1, L2
In this paper we present a model of oligopoly and financial constraints. We study allocations which are bankruptcy-free (BF) in the sense that no firm can drive another firm to bankruptcy without becoming bankrupt. We show how such allocations can be sustained as an equilibrium of a dynamic game. When there are two firms, all equilibria yield BF allocations. When there are more than two firms, allocations other than BF can be sustained as equilibria but in some cases the set of BF allocations still useful in explaining the shape of equilibrium set.
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