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Price-quantity competition with varying toughness

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  • d’ASPREMONT, Claude
  • DOS SANTOS FERREIRA, Rodolphe

Abstract

For an industry producing a single homogeneous good, we define and characterize the concept of oligopolistic equilibrium, allowing for a parameterized continuum of regimes with varying competitive toughness. This parameterization will appear to be equivalent to the one used in the empirical literature. The Cournot and the competitive outcomes coincide, respectively, with the softest and the toughest oligopolistic equilibrium outcome. The concept offers an alternative to the conjectural variations approach with better foundations. It can be viewed as a canonical description of oligopolistic behavior which can receive different theoretical justifications and provide a convenient tool for modeling purposes. Two illustrative cases (linear and isoelastic demands) are developed and the possibility of endogenizing (strategically) the choice of competitive toughness by the firms is examined.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2085.

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Handle: RePEc:cor:louvrp:-2085

Note: In : Games and Economic Behavior, 65(1), 62-82, 2009
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  1. Cyert, Richard M & DeGroot, Morris H, 1973. "An Analysis of Cooperation and Learning in a Duopoly Context," American Economic Review, American Economic Association, American Economic Association, vol. 63(1), pages 24-37, March.
  2. Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 2010. "Strategic R&D investment, competitive toughness and growth," International Journal of Economic Theory, The International Society for Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 273-295.
  3. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 549-569, Autumn.
  4. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, Econometric Society, vol. 49(5), pages 1149-72, September.
  5. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Pricing schemes and Cournotian equilibria," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -943, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. d'ASPREMONT, Claude & DOS SANTOS-FERREIRA, Rodolphe & GÉRARD-VARET, Louis-André, 2003. "Competition for market share or for market size: oligopolistic equilibria with varying competitive toughness," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2003010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  8. Delgado, Juan & Moreno, Diego, 2004. "Coalition-proof supply function equilibria in oligopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 114(2), pages 231-254, February.
  9. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(5), pages 705-726, April.
  10. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
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Cited by:
  1. Laurens CHERCHYE & Thomas DEMUYNCK & Bram DE ROCK, 2011. "The empirical content of Cournot competition," Center for Economic Studies - Discussion papers, Katholieke Universiteit Leuven, Centrum voor Economische Studiën ces11.11, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2010. "Oligopolistic competition as a common agency game," Games and Economic Behavior, Elsevier, Elsevier, vol. 70(1), pages 21-33, September.
  3. Claude d’Aspremont & Rodolphe Dos Santos Ferreira, 2014. "Household behavior and individual autonomy: an extended Lindahl mechanism," Economic Theory, Springer, Springer, vol. 55(3), pages 643-664, April.
  4. Claude, DASPREMONT & Rodolphe, DOS SANTOS FERREIRA & Jacques, THEPOT, 2007. "Hawks and doves in segmented markets : a formal approach to competitive aggressiveness," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2007039, Université catholique de Louvain, Département des Sciences Economiques.
  5. Farm, Ante, 2013. "Price Formation in Consumer Markets," Working Paper Series 1/2013, Swedish Institute for Social Research.
  6. d’ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe, 2009. "Household behavior and individual autonomy," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2009022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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