Why are firms sometimes unwilling to reduce costs?
AbstractThis paper establishes three new results for multiproduct oligopolies: 1) it presents the first explicit expression of Nash equilibria for asymmetric multiproduct oligopolies; 2) it shows that reducing a multiproduct firms cost in Bertrand oligopolies will reduce its profits if the cost-reducing unit is sufficiently small; and 3) it demonstrates that a multiproduct firm has no incentive to eliminate a product whose sales are zero. Because a single-product firm whose sales are zero is indifferent between exiting and staying, and its cost reductions always increase its profits, our results are unique to the multiproduct firm, and they suggest that extending oligopoly studies from a single product to multi-products could be as significant as the extension of calculus from a single variable to multi-variables.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Economics.
Volume (Year): 101 (2010)
Issue (Month): 2 (October)
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Web page: http://www.springerlink.com/link.asp?id=108909
Effect of cost reduction; Multiproduct oligopoly; Price competition; C63; D43; L13;
Other versions of this item:
- X. Henry Wang & Jingang Zhao, 2007. "Why Are Firms Sometimes Unwilling to Reduce Costs?," Working Papers 0703, Department of Economics, University of Missouri.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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