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Hawks and doves in segmented markets : a formal approach to competitive aggressiveness

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  • Claude, DASPREMONT

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Rodolphe, DOS SANTOS FERREIRA
  • Jacques, THEPOT

Abstract

Competitive aggressiveness is analyzed in a simple spatial oligopolistic competition model, where each one of two firms supplies two connected markets segments, one captive the other contested. To begin with, firms are simply assumed to maximize profit subject to two constraints, one related to competitiveness, the other to market feasibility. The competitive aggressiveness of each firm, measured by the relative implicit price of the former constraint, is then endogenous and may be taken as a parameter to characterize the set of equilibria. A further step consists in supposing that competitive aggressiveness is controlled by each firm through its manager hiring decision, in a preliminary stage of a delegation game. When competition is exogenously intensified, through higher product substitutability or through larger relative size of the contested market segment, competitive aggressiveness is decreased at the subgame perfect equiibrium. This decrease partially compensates for the negative effect on profitability of more intense competition

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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007039.

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Length: 31
Date of creation: 01 Dec 2007
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Handle: RePEc:ctl:louvec:2007039

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