Intertemporal market division: a case of alternating monopoly

In this paper, we report on an equilibrium with market dominance that exists in a simple two-firm model that features neither entry barriers nor sophisticated punishment strategies. This equilibrium induces an intertemporal market division in which the two firms alternate as monopolists--despite the fact that the model also sustains a Cournot duopoly. Even when initially both firms are active in the market, the alternating monopoly reveals itself rather quickly. Moreover, it Pareto dominates the Cournot equilibrium--as it is close to the cartel outcome. Several examples of what well may be such alternating monopolies are presented. JEL classification: C73; D43; L13 Keywords: Dynamic competition; Oligopolistic competition; Stochastic games; Monopoly.