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Imperfect Information and Dynamic Conjectural Variations

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Michael H. Riordan

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Abstract

This article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve. The analysis develops a two-period Cournot framework under the assumptions that demand shifts are positively serially correlated, that firms never directly observe the demand curve, and that firms never observe the previous quantity decisions of rivals. Firms do draw inferences about the position of the demand curve from past observations on prices. Consequently, the current output of a firm will influence the current market price, which will then influence rivals' inferences about future demand. The future output decisions of rivals will respond accordingly. The theory predicts negative dynamic conjectural variations. Essentially, a firm perceives that an increase in its output will lower the current market-clearing price, which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198521%2916%3A1%3C41%3AIIADCV%3E2.0.CO%3B2-A&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 16 (1985)
Issue (Month): 1 (Spring)
Pages: 41-50
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Handle: RePEc:rje:randje:v:16:y:1985:i:spring:p:41-50

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  1. Lynn Hunnicutt & David Aadland, 2002. "Market Power with Dynamic Invertory Constraints: The Bias in Standard Measures," Working Papers 2002-15, Utah State University, Department of Economics. [Downloadable!]
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  2. Vassilis A. Hajivassiliou, 1990. "Testing Game Theoretic Models of Price-Fixing Behaviour," Cowles Foundation Discussion Papers 935, Cowles Foundation, Yale University. [Downloadable!]
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  3. Godfrey Keller & Sven Rady, 1999. "Market Experimentation in a Dynamic Differentiated-Goods Duopoly," STICERD - Theoretical Economics Paper Series 369, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  4. Kenneth Hendricks & Robert Porter, 1989. "Collusion in Auctions," Discussion Papers 817, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  5. Arthur Fishman & Rafael Rob, . ""Experimentation and Competition''," CARESS Working Papres 97-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
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  6. X. Henry Wang & Bill Yang, 2003. "Why Competition may Discourage Students from Learning? A Behavioral Economic Analysis," Education Economics, Taylor and Francis Journals, vol. 11(2), pages 117-128, August. [Downloadable!] (restricted)
  7. Reiss, Peter C. & Wolak, Frank A., 2003. "Structural Econometric Modeling: Rationales and Examples from Industrial Organization," Research Papers 1831, Stanford University, Graduate School of Business. [Downloadable!]
  8. Bitran, Gabriel R. & Wadhwa, Hitendra K. S. (Hitendra Kumar Singh), 1996. "Some structural properties of the seasonal product pricing problem," Working papers 3897-96., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  9. Paula Sarmento & António Brandão, 2008. "Regulatory design under asymmetric information about demand," CETE Discussion Papers 0802, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  10. Jeong-Yoo Kim, 2003. "Entry Deterrence And Entry Inducement In An Industry With Complementary Products," International Economic Journal, Korean International Economic Association, vol. 17(4), pages 107-123, December. [Downloadable!] (restricted)
  11. Bulavsky, V.A. & Kalashnikov, V.V., 1999. "Equilibrium in generalized Cournot and Stackelberg models," Discussion Paper 116, Tilburg University, Center for Economic Research. [Downloadable!]
  12. Clement G. K Rou Se, 1998. "Market Dominance: Competing Theories and A ntitrust Policy. A Review of Michael Utton, Market Dominance and Antitrust Policy," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 5(1), pages 119-127, February. [Downloadable!] (restricted)
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