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Competitiveness and Conjectural Variation in Duopoly Markets

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  • Jim Jin
  • Osiris J. Parcero

Abstract

Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg and joint profit maximization. In comparing these market structures this paper make three contributions. First, we find a clear price (output) ranking among these five markets when goods are substitutes (complements). Second, these rankings can be explained by different levels of conjectural variation associated with each market structure. Third, in a more general non-linear duopoly model we find that CV in prices tends to hurt consumers, while CV in quantities is often good for social welfare. In this last case the policy recommendation for regulators seems to be to encourage the establishment of firms’ reputation in quantity responses, but to discourage it in price responses.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0613.

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Date of creation: Dec 2006
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Handle: RePEc:san:crieff:0613

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Keywords: Optimal Bertrand; Cournot; Stackelberg; monopoly; ranking; conjectural variation.;

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References

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  1. Charles D. Kolstad & Frank A. Wolak, 1986. "Conjectural Variation and the Indeterminacy of Duopolistic Equilibria," Canadian Journal of Economics, Canadian Economics Association, vol. 19(4), pages 656-77, November.
  2. Michael Pfaffermayr, . "Conjectural Variation Models and Supergames with Price Competition in a Differentiated Product Oligopoly," WIFO Working Papers 123, WIFO.
  3. Hathaway, Neville J. & Rickard, John A., 1979. "Equilibria of price-setting and quantity-setting duopolies," Economics Letters, Elsevier, vol. 3(2), pages 133-137.
  4. Anderson, Simon P. & Engers, Maxim, 1992. "Stackelberg versus Cournot oligopoly equilibrium," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 127-135, March.
  5. Robson, Arthur J, 1983. "Existence of Consistent Conjectures: Comment," American Economic Review, American Economic Association, vol. 73(3), pages 454-56, June.
  6. Boyer, M., 1981. "Strategic Equilibrium with Reaction Threats," Cahiers de recherche 8137, Universite de Montreal, Departement de sciences economiques.
  7. BOYER, Marcel & MOREAUX, Michel, . "Consistent versus non-consistent conjectures in duopoly theory: some examples," CORE Discussion Papers RP -544, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Dastidar, Krishnendu Ghosh, 2004. "On Stackelberg games in a homogeneous product market," European Economic Review, Elsevier, vol. 48(3), pages 549-562, June.
  9. Fama, Eugene F & Laffer, Arthur B, 1972. "The Number of Firms and Competition," American Economic Review, American Economic Association, vol. 62(4), pages 670-74, September.
  10. John McMillan, 1984. "Collusion, Competition, and Conjectures," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 788-805, November.
  11. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
  12. Amir, Rabah & Jin, Jim Y., 2001. "Cournot and Bertrand equilibria compared: substitutability, complementarity and concavity," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 303-317, March.
  13. Ulph, David, 1983. "Rational conjectures in the theory of oligopoly," International Journal of Industrial Organization, Elsevier, vol. 1(2), pages 131-154, June.
  14. Okuguchi, Koji, 1987. "Equilibrium prices in the Bertrand and Cournot oligopolies," Journal of Economic Theory, Elsevier, vol. 42(1), pages 128-139, June.
  15. Morton I. Kamien & Nancy L. Schwartz, 1983. "Conjectural Variations," Canadian Journal of Economics, Canadian Economics Association, vol. 16(2), pages 191-211, May.
  16. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
  17. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-66, September.
  18. Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
  19. Gollop, Frank M. & Roberts, Mark J., 1979. "Firm interdependence in oligopolistic markets," Journal of Econometrics, Elsevier, vol. 10(3), pages 313-331, August.
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