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Elastic demand, sunk costs and the Kreps-Scheinkman extension of the Cournot model

Author

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  • Paul Madden

    (School of Economic Studies, Manchester University, Manchester M13 9PL, UK)

Abstract

The paper shows that, with any rationing mechanism between the efficient and proportional extremes, the Kreps-Scheinkman two-stage quantity-price game reduces to the Cournot model if demand is uniformly elastic and if all costs are sunk at the first stage, thus providing positive results to set against existing negative statements.

Suggested Citation

  • Paul Madden, 1998. "Elastic demand, sunk costs and the Kreps-Scheinkman extension of the Cournot model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 199-212.
  • Handle: RePEc:spr:joecth:v:12:y:1998:i:1:p:199-212
    Note: Received: May 24, 1995; revised version: March 6, 1997
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    Citations

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    Cited by:

    1. Clark, Ken & Kaas, Leo & Madden, Paul, 2006. "Minimum wage increases can lead to wage reductions by imperfectly competitive firms," Economics Letters, Elsevier, vol. 91(2), pages 287-292, May.
    2. J. Peter Neary & Joe Tharakan, 2005. "Endogenous mode of competition in general equilibrium," Working Papers 200526, School of Economics, University College Dublin.
    3. Pedro Jara-Moroni, 2008. "The Cournot outcome as the result of price competition," Working Papers halshs-00587866, HAL.
    4. Neary, J. Peter & Tharakan, Joe, 2012. "International trade with endogenous mode of competition in general equilibrium," Journal of International Economics, Elsevier, vol. 86(1), pages 118-132.
    5. Wu, Xin-wang & Zhu, Quan-tao & Sun, Laixiang, 2012. "On equivalence between Cournot competition and the Kreps–Scheinkman game," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 116-125.
    6. Simon Loertscher, 2008. "MARKET MAKING OLIGOPOLY -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    7. Nicolas Gruyer, 2009. "A note on quantity precommitment, cournot outcome and asymmetric capacity costs," Economics Bulletin, AccessEcon, vol. 29(1), pages 384-391.
    8. Jacobs, Martin, 2016. "Number of firms, rationing, matching, and knowledge: A comprehensive study of variations in experimental Kreps-Scheinkman markets," Economics Working Papers 2016-02, Christian-Albrechts-University of Kiel, Department of Economics.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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