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The Choice of Prices vs. Quantities under Uncertainty

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  • Reisinger, Markus
  • Ressner, Ludwig

Abstract

This paper analyzes a duopoly model with stochastic demand in which firms first choose their strategy variable and compete afterwards. Contrary to the existing literature, we show that firms do not always choose a quantity which is the variable that induces a smaller degree of competition. The reason is that demand uncertainty and the degree of substitutability have countervailing effects on variable choice. Higher uncertainty favors prices, while closer substitutability favors quantities. Moreover, for intermediate values firms choose different strategy variables in equilibrium.

Suggested Citation

  • Reisinger, Markus & Ressner, Ludwig, 2007. "The Choice of Prices vs. Quantities under Uncertainty," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 202, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:202
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    File URL: https://epub.ub.uni-muenchen.de/13350/1/202.pdf
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    References listed on IDEAS

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    1. Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May.
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    More about this item

    Keywords

    competition; strategy variables; demand uncertainty;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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