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Conjectural Variation Models and Supergames with Price-Competition in a Differentiated Product Oligopoly

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  • Pfaffermayer, M.

Abstract

Conjectural variation models are popular in empirical research as they infer the degree of market power from real data. IO-theorists, however, disapprove it for lack of theoretical foundation, arguing that dynamic reactions are forced into a static model with the strategy space and time horizon only loosely defined. The presented model follows an idea put forward by Cabral (1995) and demonstrates that the CV-model can be interpreted as the joint profit maximising steady state reduced form of a price setting supergame in a differentiated product market under optimal punishment strategies. For the symmetric two firm case the CV-parameter is shown to cover the full range of possible outcomes depending on product differentiation, market growth, bankruptcy risk and the discount rate.

Suggested Citation

  • Pfaffermayer, M., 1997. "Conjectural Variation Models and Supergames with Price-Competition in a Differentiated Product Oligopoly," University of East Anglia Discussion Papers in Economics 9704, School of Economics, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:papers:9704
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    More about this item

    Keywords

    OLIGOPOLIES ; PRICING;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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