Cobb-Douglas preferences in bilateral oligopoly
AbstractBilateral oligopoly is a simple model of exchange in which a finite set of sellers seek to exchange the goods they are endowed with for money with a finite set of buyers, and no price-taking assumptions are imposed. If trade takes place via a strategic market game bilateral oligopoly can be thought of as two linked proportional-sharing contests: in one the sellers share the aggregate bid from the buyers in proportion to their supply and in the other the buyers share the aggregate supply in proportion to their bids. The analysis can be separated into two â€˜partial gamesâ€™. First, fix the aggregate bid at B; in the first partial game the sellers contest this fixed prize in proportion to their supply and the aggregate supply in the equilibrium of this game is XËœ (B). Next, fix the aggregate supply at X; in the second partial game the buyers contest this fixed prize in proportion to their bids and the aggregate bid in the equilibrium of this game is ËœB (X). The analysis of these two partial games takes into account competition within each side of the market. Equilibrium in bilateral oligopoly must take into account competition between sellers and buyers and requires, for example, ËœB (XËœ (B)) = B. When all traders have Cobb-Douglas preferences Ëœ X(B) does not depend on B and ËœB (X) does not depend on X: whilst there is competition within each side of the market there is no strategic interdependence between the sides of the market. The Cobb-Douglas assumption provides a tractable framework in which to explore the features of fully strategic trade but it misses perhaps the most interesting feature of bilateral oligopoly, the implications of which are investigated.
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Bibliographic InfoPaper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1306.
Length: 21 pages
Date of creation: Jun 2013
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Publication status: Published
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More information through EDIRC
strategic market game; bilateral oligopoly; Cobb-Douglas preferences;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-COM-2013-07-28 (Industrial Competition)
- NEP-MIC-2013-07-28 (Microeconomics)
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