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.
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 Springer in its journal Journal of Economics.
Volume (Year): 101 (2010)
Issue (Month): 2 (October)
Contact details of provider:
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
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.:
- Harrington, Joseph E, Jr, 1987. "Collusion in Multiproduct Oligopoly Games under a Finite Horizon," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 1-14, February.
- Volker Grossmann, 2003. "Firm Size and Diversification: Asymmetric Multiproduct Firms under Cournot Competition," CESifo Working Paper Series 1047, CESifo Group Munich.
- Luís M. B. Cabral & Miguel Villas-Boas, 2005. "Bertrand Supertraps," Management Science, INFORMS, vol. 51(4), pages 599-613, April.
- Kao, Tina & Menezes, Flavio, 2009.
"Endogenous mergers under multi-market competition,"
Journal of Mathematical Economics,
Elsevier, vol. 45(12), pages 817-829, December.
- Tina Kao & Flavio Menezes, 2009. "Endogenous Mergers Under Multi-Market Competition," ANU Working Papers in Economics and Econometrics 2009-507, Australian National University, College of Business and Economics, School of Economics.
- Tina Kao & Flavio Menezes, 2008. "Endogenous Mergers under Multi-Market Competition," Discussion Papers Series 355, School of Economics, University of Queensland, Australia.
- Wang, X. Henry & Zhao, Jingang, 2007. "Welfare reductions from small cost reductions in differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 173-185, February.
- Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Novshek, William, 1985.
"On the Existence of Cournot Equilibrium,"
Review of Economic Studies,
Wiley Blackwell, vol. 52(1), pages 85-98, January.
- Justin P. Johnson & David P. Myatt, 2003.
"Multiproduct Quality Competition: Fighting Brands and Product Line Pruning,"
American Economic Review,
American Economic Association, vol. 93(3), pages 748-774, June.
- David P. Myatt & Justin P. Johnson, 2002. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," Economics Series Working Papers 105, University of Oxford, Department of Economics.
- Cabral, L.M.B., 2001.
"Multiproduct Oligopoly and Bertrand Supertraps,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
01-04, New York University, Leonard N. Stern School of Business-.
- Donald Smythe & Jingang Zhao, 2006. "The Complete Welfare Effects of Cost Reductions in a Cournot Oligopoly," Journal of Economics, Springer, vol. 87(2), pages 181-193, 03.
- Lapan, Harvey E. & Hennessy, David A., 2006. "Note on Cost Arrangement and Market Performance in a Multi-Product Cournot Oligopoly, A," Staff General Research Papers 12720, Iowa State University, Department of Economics.
- Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
- Lapan, Harvey E. & Hennessy, David A., 2006. "A note on cost arrangement and market performance in a multi-product Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 583-591, May.
- Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
- Zhang, Anming & Zhang, Yimin, 1996. "Stability of a Cournot-Nash equilibrium: The multiproduct case," Journal of Mathematical Economics, Elsevier, vol. 26(4), pages 441-462.
- Vives, Xavier, 2005. "Games with strategic complementarities: New applications to industrial organization," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 625-637, September.
- Pham Do, K.H. & Folmer, H., 2003. "International Fisheries Agreements: The Feasibility and Impacts of Partial Cooperation," Discussion Paper 2003-52, Tilburg University, Center for Economic Research.
- Friedel Bolle, 2011.
"Over- and under-investment according to different benchmarks,"
Journal of Economics,
Springer, vol. 104(3), pages 219-238, November.
- Bolle, Friedel, 2008. "Over- and under-investment according to different benchmarks," Discussion Papers 265, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
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.