IDEAS home Printed from
   My bibliography  Save this paper

Oligopolistic Services and Cost Function Estimation


  • Toivanen, Otto


Oligopolistic services and branch network decisions are studied. There are two opposing effects when a firm decides the number of branches : the captivation effect of increasing market power, and a cost effect of average costs. These ideas are formalized in a two-city Hotelling model. Firms face two cost functions : the technical cost function, given by production technology and the perceived cost function which reflects also market characteristics. There are economies of scope and diseconomies of scale at firm level and economies of scale at branch level in Finnish non-life insurance, as predicted by the model.

Suggested Citation

  • Toivanen, Otto, 1994. "Oligopolistic Services and Cost Function Estimation," The Warwick Economics Research Paper Series (TWERPS) 429, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:429

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Benassy, Jean-Pascal, 1995. "Money and wage contracts in an optimizing model of the business cycle," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 303-315, April.
    3. Giovannini, Alberto, 1989. "Uncertainty and liquidity," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 239-258, March.
    4. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    5. Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, vol. 37(8), pages 1533-1568, December.
    6. Katz, Eliakim & Rosenberg, Jacob, 1983. "Inflation Variability, Real-Wage Variability and Production Inefficiency," Economica, London School of Economics and Political Science, vol. 50(200), pages 469-475, November.
    7. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    8. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
    9. Alberto Giovannini, 1987. "Uncertainty and Liquidity," NBER Working Papers 2296, National Bureau of Economic Research, Inc.
    10. Rankin, Neil, 1994. "Monetary uncertainty in discrete-time utility-of-money models," Economics Letters, Elsevier, vol. 44(1-2), pages 127-132.
    11. Grinols, Earl L. & Turnovsky, Stephen J., 1993. "Risk, the financial market, and macroeconomic equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 1-36.
    12. Stulz, ReneM., 1986. "Interest rates and monetary policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 331-347, May.
    13. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
    14. Bianconi, Marcelo, 1992. "Monetary growth innovations in a simple cash-in-advance asset-pricing model," European Economic Review, Elsevier, vol. 36(8), pages 1501-1521, December.
    15. Sorensen, Jan Rose, 1992. " Uncertainty and Monetary Policy in a Wage Bargaining Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 443-455.
    16. Evans, George W, 1989. "The Conduct of Monetary Policy and the Natural Rate of Unemployment: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 498-507, November.
    17. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-199, April.
    18. Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.
    19. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    20. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, June.
    21. Gertler, Mark & Grinols, Earl, 1982. "Monetary randomness and investment," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 239-258.
    22. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    23. Lars E. O. Svensson, 1986. "Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 385-405.
    Full references (including those not matched with items on IDEAS)

    More about this item


    cost function ; insurance ; multimarket ; oligopoly ; services;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L80 - Industrial Organization - - Industry Studies: Services - - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:429. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margaret Nash). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.