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Multi-stage oligopoly models with nested logit demand structures: A simplifying approach

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  • Varela-Irimia, Xosé-Luís

Abstract

Solving multi-stage oligopoly models by backward induction can easily become a com- plex task when rms are multi-product and demands are derived from a nested logit frame- work. This paper shows that under the assumption that within-segment rm shares are equal across segments, the analytical expression for equilibrium pro ts can be substantially simpli ed. The size of the error arising when this condition does not hold perfectly is also computed. Through numerical examples, it is shown that the error is rather small in general. Therefore, using this assumption allows to gain analytical tractability in a class of models that has been used to approach relevant policy questions, such as for example rm entry in an industry or the relation between competition and location. The simplifying approach proposed in this paper is aimed at helping improving these type of models for reaching more accurate recommendations.

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File URL: http://hdl.handle.net/2072/179616
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Bibliographic Info

Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/179616.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/179616

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Keywords: Oligopolis; 334 - Formes d'organització i cooperació en l'economia;

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  1. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
  2. Darlene Chisholm & George Norman, 2002. "Heterogeneous Preferences and Location Choice with Multi-Product Firms," Discussion Papers Series, Department of Economics, Tufts University 0205, Department of Economics, Tufts University.
  3. Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
  4. Janssen, Maarten C.W. & Karamychev, Vladimir A. & van Reeven, Peran, 2005. "Multi-store competition: Market segmentation or interlacing?," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 700-714, November.
  5. Christou, Charalambos & Vettas, Nikolaos, 2005. "Location choices under quality uncertainty," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 268-278, November.
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