Mixed Oligopoly under Demand Uncertainty
AbstractIn this paper we introduce product demand uncertainty in a mixed oligopoly model and reexamine the nature of sub-game perfect Nash equilibrium (SPNE) when firms decide in the first stage whether to lead or follow in the subsequent quantity-setting game. In the non-stochastic setting, Pal (1998) demonstrated that when a public firm competes with a domestic private firm, multiple equilibria exist but the efficient equilibrium outcome is for the public firm to follow. Matsumura (2003a) proved that when the public firm's rival is a foreign private firm, leadership of the public firm is both efficient as well as SPN equilibrium. Our stochastic model shows that when the leader must commit to output before the resolution of uncertainty, multiple SPNE is possible. Whether the equilibrium outcome is public or private leadership hinges upon the degree of privatization and market volatility. More importantly, Pareto-inefficient simultaneous production is a likely SPNE. Our results are driven by the fact that the resolution of uncertainty enhances the profits of the follower firm in a manner that is well known in real option theory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 7 (2007)
Issue (Month): 1 (June)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Saloner, Garth, 1987. "Cournot duopoly with two production periods," Journal of Economic Theory, Elsevier, vol. 42(1), pages 183-187, June.
- Jacques, Armel, 2004. "Endogenous timing in a mixed oligopoly: a forgotten equilibrium," Economics Letters, Elsevier, vol. 83(2), pages 147-148, May.
- Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
- Yuanzhu Lu & Sougata Poddar, 2004.
"The Choice of Capacity in Mixed Duopoly under Demand Uncertainty,"
CEMA Working Papers
507, China Economics and Management Academy, Central University of Finance and Economics.
- Yuanzhu Lu & Sougata Poddar, 2006. "The Choice Of Capacity In Mixed Duopoly Under Demand Uncertainty," Manchester School, University of Manchester, vol. 74(3), pages 266-272, 06.
- Midori Hirokawa & Dan Sasaki, 2001. "Endogenously Asynchronous Entries into an Uncertain Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 435-461, 09.
- Yuanzhu Lu, 2005.
"Endogenous Timing in a Mixed Oligopoly with Foreign Competitors: the Linear Demand Case,"
CEMA Working Papers
506, China Economics and Management Academy, Central University of Finance and Economics.
- Yuanzhu Lu, 2006. "Endogenous Timing in a Mixed Oligopoly with Foreign Competitors: the Linear Demand Case," Journal of Economics, Springer, vol. 88(1), pages 49-68, June.
- Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-43, August.
- de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
- Amir, Rabah & Grilo, Isabel, 1999. "Stackelberg versus Cournot Equilibrium," Games and Economic Behavior, Elsevier, vol. 26(1), pages 1-21, January.
- Hamilton, J.H. & Slutsky, S.M., 1988.
"Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria,"
88-4, Florida - College of Business Administration.
- Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
- Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
- Lu, Yuanzhu, 2007. "Endogenous timing in a mixed oligopoly: Another forgotten equilibrium," Economics Letters, Elsevier, vol. 94(2), pages 226-227, February.
- Pal, Debashis, 1998. "Endogenous timing in a mixed oligopoly," Economics Letters, Elsevier, vol. 61(2), pages 181-185, November.
- Bagwell, Kyle, 1995.
"Commitment and observability in games,"
Games and Economic Behavior,
Elsevier, vol. 8(2), pages 271-280.
- Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
- Tamás Balogh & Attila Tasnádi, 2012.
"Does timing of decisions in a mixed duopoly matter?,"
Journal of Economics,
Springer, vol. 106(3), pages 233-249, July.
- Balogh, Tamás L. & Tasnádi, Attila, 2011. "Does timing of decisions in a mixed duopoly matter?," MPRA Paper 30993, University Library of Munich, Germany.
- Li, Changying & Zhang, Jianhu, 2011. "Equilibrium locations in a mixed duopoly with sequential entry in real time," Economic Modelling, Elsevier, vol. 28(3), pages 1211-1218, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.