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Choice of strategic variables by relative profit maximizing firms in oligopoly

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  • Satoh, Atsuhiro
  • Tanaka, Yasuhito

Abstract

This paper studies the choice of strategic variables by firms in a symmetric oligopoly in which each firm produces differentiated goods and maximizes its relative profit that is the difference between its profit and the average profit of the other firms. We consider a two stage game such that in the first stage the firms choose their strategic variables, quantity or price, and in the second stage they determine the values of their strategic variables. We show that the choice of strategic variables is irrelevant in the sense that the equilibrium quantities and prices are the same in all firms whichever each firm chooses in the first stage, so any combination of strategy choice by the firms constitutes a sub-game perfect equilibrium in the two stage game.

Suggested Citation

  • Satoh, Atsuhiro & Tanaka, Yasuhito, 2016. "Choice of strategic variables by relative profit maximizing firms in oligopoly," MPRA Paper 71053, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:71053
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    References listed on IDEAS

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    1. Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May.
    2. Kockesen, Levent & Ok, Efe A. & Sethi, Rajiv, 2000. "The Strategic Advantage of Negatively Interdependent Preferences," Journal of Economic Theory, Elsevier, vol. 92(2), pages 274-299, June.
    3. Yasuhito Tanaka, 2013. "Equivalance of Cournot and Bertrand equilibria in differentiated duopoly under relative profit maximization with linear demand," Economics Bulletin, AccessEcon, vol. 33(2), pages 1479-1486.
    4. Tanaka, Yasuhito, 2001. "Profitability of price and quantity strategies in an oligopoly," Journal of Mathematical Economics, Elsevier, vol. 35(3), pages 409-418, June.
    5. Satoh, Atsuhiro & Tanaka, Yasuhito, 2014. "Relative profit maximization in asymmetric oligopoly: Cournot and Bertrand equilibria," MPRA Paper 55883, University Library of Munich, Germany.
    6. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    7. Atsuhiro Satoh & Yasuhito Tanaka, 2014. "Relative profit maximization and equivalence of Cournot and Bertrand equilibria in asymmetric duopoly," Economics Bulletin, AccessEcon, vol. 34(2), pages 819-827.
    8. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    9. Matsumura, Toshihiro & Matsushima, Noriaki & Cato, Susumu, 2013. "Competitiveness and R&D competition revisited," Economic Modelling, Elsevier, vol. 31(C), pages 541-547.
    10. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    11. Matsumura, Toshihiro & Ogawa, Akira, 2012. "Price versus quantity in a mixed duopoly," Economics Letters, Elsevier, vol. 116(2), pages 174-177.
    12. Satoh, Atsuhiro & Tanaka, Yasuhito, 2014. "Choice of strategic variables under relative profit maximization in asymmetric oligopoly," MPRA Paper 55886, University Library of Munich, Germany.
    13. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    Cited by:

    1. Atsuhiro Satoh & Yasuhito Tanaka, 2018. "Maximin and Minimax Strategies in Two-Players Game with Two Strategic Variables," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-13, March.

    More about this item

    Keywords

    relative profit maximization; oligopoly;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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