IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The commitment value of the debt: A reappraisal

  • Franck, Bernard
  • Le Pape, Nicolas

We analyze the strategic use of the debt in a duopoly model of Cournot competition. We consider a two stage model where debt acts as a commitment variable and we characterize subgame perfect equilibria. We differ from several models based on the strategic value of the debt such as Wanzenried [Wanzenried G. (2003), "Capital Structure Decisions and Output Market Competition Under Demand Uncertainty", International Journal of Industrial Organization 21, 171-200.] in showing that, if one assumes that the debt level acts as a commitment device, it is incorrect to consider bankruptcy risk as a strategic variable. We demonstrate properties concerning the influence of price volatility and product differentiation upon equilibrium values of production, default risk and debt obligation.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V8P-4NTB923-2/1/35645dc24af89de3012d5d0a8b1bb09e
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 2 (March)
Pages: 607-615

as
in new window

Handle: RePEc:eee:indorg:v:26:y:2008:i:2:p:607-615
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Vojislav Maksimovic, 1988. "Capital Structure in Repeated Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 389-407, Autumn.
  2. 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 221-43, May.
  3. Michel Poitevin, 1989. "Collusion and the Banking Structure of a Duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 263-77, May.
  4. John S. Hughes & Jennifer L. Kao & Arijit Mukherji, 1998. "Oligopoly, Financial Structure, and Resolution of Uncertainty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 67-88, 03.
  5. Maksimovic, Vojislav, 1990. " Product Market Imperfections and Loan Commitments," Journal of Finance, American Finance Association, vol. 45(5), pages 1641-53, December.
  6. Dean Showalter, 1999. "Debt as an Entry Deterrent Under Bertrand Price Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 1069-1081, August.
  7. Wanzenried, Gabrielle, 2003. "Capital structure decisions and output market competition under demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 171-200, February.
  8. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-53, June.
  9. Ho-Chyuan Chen, 2005. "Strategic Debt And Rjv Competition ," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 149-161, 06.
  10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:26:y:2008:i:2:p:607-615. 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: (Zhang, Lei)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.