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Taking firms’ margin targets seriously in a model of competition in supply functions

Author

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  • Denis Claude

    (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Mabel Tidball

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier)

Abstract

We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.

Suggested Citation

  • Denis Claude & Mabel Tidball, 2022. "Taking firms’ margin targets seriously in a model of competition in supply functions," CEE-M Working Papers hal-03548797, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    • Handle: RePEc:hal:wpceem:hal-03548797
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03548797
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    References listed on IDEAS

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    1. Denis Claude & Mabel Tidball, 2022. "Taking firms’ margin targets seriously in a model of competition in supply functions," Working Papers hal-03548797, HAL.
    2. Frederic S. Lee, 1984. "The Marginalist Controversy and the Demise of Full Cost Pricing," Journal of Economic Issues, Taylor & Francis Journals, vol. 18(4), pages 1107-1132, December.
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    1. Denis Claude & Mabel Tidball, 2022. "Taking firms’ margin targets seriously in a model of competition in supply functions," Working Papers hal-03548797, HAL.
    2. Denis Claude & Mabel Tidball, 2022. "Taking firms’ margin targets seriously in a model of competition in supply functions," Working Papers hal-03548797, HAL.

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    Keywords

    supply function; markup pricing; price fixing; oligopoly;
    All these keywords.

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