IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v21y1988i2p221-43.html
   My bibliography  Save this article

Bankruptcy Costs and the Theory of Oligopoly

Author

Listed:
  • James A. Brander
  • Tracy R. Lewis

Abstract

This paper examines the relationship between financial decisions and output decisions in oligopolistic markets. Assuming a duopoly market structure in which financial decisions and output decisions follow in sequence, the authors analyze how bankrupt cy costs, which are incurred when the firm is unable to meet current debt obligations, affect the firm's behavior in output markets. With fixed bankruptcy costs, firms have an incentive to increase output le vels if they take on more debt. Proportional bankruptcy costs lead to a U-shaped relationship between output and debt. Foresighted owners of firms are led to take into account the strategic output effects of financial structure when considering an optimal financial structure for the firm.

Suggested Citation

  • James A. Brander & Tracy R. Lewis, 1988. "Bankruptcy Costs and the Theory of Oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 221-243, May.
  • Handle: RePEc:cje:issued:v:21:y:1988:i:2:p:221-43
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0008-4085%28198805%2921%3A2%3C221%3ABCATTO%3E2.0.CO%3B2-X
    Download Restriction: only available to JSTOR subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:21:y:1988:i:2:p:221-43. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler). General contact details of provider: http://edirc.repec.org/data/ceaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.