Conjectural Variation Models and Supergames with Price-Competition in a Differentiated Product Oligopoly
AbstractConjectural variation models are popular in empirical research as they infer the degree of market power from real data. IO-theorists, however, disapprove it for lack of theoretical foundation, arguing that dynamic reactions are forced into a static model with the strategy space and time horizon only loosely defined. The presented model follows an idea put forward by Cabral (1995) and demonstrates that the CV-model can be interpreted as the joint profit maximising steady state reduced form of a price setting supergame in a differentiated product market under optimal punishment strategies. For the symmetric two firm case the CV-parameter is shown to cover the full range of possible outcomes depending on product differentiation, market growth, bankruptcy risk and the discount rate.
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Bibliographic InfoPaper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Discussion Papers in Economics with number 9704.
Length: 23 pages
Date of creation: 1997
Date of revision:
Postal: Helen Chapman, School of Economics, University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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