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Price versus Quantity Competition with Cost Sharing

  • L. Lambertini
  • S. Poddar
  • D. Sasaki

We inspect the interlink between the endogenous choice of price- and quantity- setting behavior in an oligopolic market, and cost sharing among oligopolists. A typical situation of this sort is an oligopoly game where firms invest in product development first, and ten play a marketing game later. Only in the initial investment stage , the firms set up a joint venture in order to share the costs. We discover that, in the presence of shared costs, the well-established result by Singh and Vives (1984) that firms endogenously choose quantity (resp., price) as a dominant strategy when their products are substitutes (resp., complements) may not be the only equilibrium outcome. In particular, the procedural order between firms` cost sharing decisions and their marketing decisions make a key difference in the resulting equilibrium profiles.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 343.

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Date of creation: Nov 1998
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Handle: RePEc:bol:bodewp:343
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  1. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-53, October.
  2. d'ASPREMONT, C. & GERARD-VARET, L.-A., . "Stackelberg-solvable games and pre-play communication," CORE Discussion Papers RP 425, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
  4. Luca Lambertini, 1997. "Prisoners’ Dilemma in Duopoly (Super)games," CIE Discussion Papers 1997-08, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  5. S. Albaek & L. Lambertini, 1997. "Price Vs Quantity in Duopoly Supergames With Close Substitutes," Working Papers 303, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Boyer, Marcel & Moreaux, Michel, 1987. "On Stackelberg Equilibria with Differentiated Products: The Critical Role of the Strategy Space," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 217-30, December.
  7. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
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