Markus Reisinger (Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Germany, markus.reisinger@lrz.uni-muenchen.de, phone: 00 49 89 2180 5645, fax: 00 49 89 2180 5650) Ludwig Ressner (Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Bavarian Graduate Program in Economics, Germany, ludwig.ressner@lrz.uni-muenchen.de, phone: 00 49 89 2180 5644, fax: 00 49 89 2180 5650)
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.
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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number
202.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - 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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