SURVIVAL OF SMALL FIRMS - GUERRILLA WARFARE

Duopolistic interaction between a small firm and a large established f irm is considered and compared to guerrilla warfare. The paper investi gates a ''hit and run'' equilibrium in which the small firm enters the market, stays there for several periods, exits, stays out for several periods, and then reenters. Occasionally there may be a price war (or retaliation), but the small firm may also exit voluntarily, thereby a voiding possible confrontation. The amount of time that the small firm stays in the market and the timing of the price wars do not follow an y predictable pattern, which is part of the mixed strategies that both firms play in equilibrium.