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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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    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.

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    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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