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Niche vs. central firms: Technology choice and cost-price dynamics in a differentiated oligopoly

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  • E. Bacchiega
  • P. G. Garella

Abstract

This paper is about technology choices in a differentiated oligopoly. The main questions are: whether the position in the product space affects the choice of technology, how changes in fixed costs affect price outcomes, the strategic responses to policy interventions. The industry is an oligopoly where a central firm is competing with two peripheral (or marginal) ones. The former is shown to be more ready than the latter to adopt a technology with low marginal costs and high fixed costs (Increasing Returns to Scale) rather than one with the opposite pattern (Constant Returns to Scale). The fixed cost in the IRS affects the technology configuration and hence output prices. For instance, a lower fixed cost may trigger lower prices and it is neutral only for given technologies. A price-cap may forestall a change in technologies; nondiscriminatory ad-valorem tax and taxes on variable input, or discriminatory unit taxes can also affect the technology pattern and deliver important effects on prices.

Suggested Citation

  • E. Bacchiega & P. G. Garella, 2018. "Niche vs. central firms: Technology choice and cost-price dynamics in a differentiated oligopoly," Working Papers wp1126, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp1126
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    References listed on IDEAS

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    1. Krysiak, Frank C., 2008. "Prices vs. quantities: The effects on technology choice," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1275-1287, June.
    2. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    3. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
    4. Morten Hviid & Matthew Olczak, 2016. "Raising Rivals’ Fixed Costs," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 19-36, February.
    5. Matt Olczak, 2005. "Raising Rivals' Fixed Costs," Working Papers 05-1, Centre for Competition Policy, University of East Anglia.
    6. Mills, David E. & Smith, William, 1996. "It pays to be different: Endogenous heterogeneity of firms in an oligopoly," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 317-329, May.
    7. Amir, Rabah & Halmenschlager, Christine & Jin, Jim, 2011. "R&D-induced industry polarization and shake-outs," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 386-398, July.
    8. Elberfeld, Walter, 2003. "A note on technology choice, firm heterogeneity and welfare," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 593-605, April.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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