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1 – 10 of 425Marco Haan and Hans Maks
Proposes a model which shows that Stackelberg competition is not necessarily welfare‐ enhancing compared with Cournot competition. Shows that, although in a simple duopoly model…
Abstract
Proposes a model which shows that Stackelberg competition is not necessarily welfare‐ enhancing compared with Cournot competition. Shows that, although in a simple duopoly model prices in a Stackelberg equilibrium are lower than in a Cournot equilibrium, this is not necessarily true in an entry‐deterrence framework, where post‐entry competition is Stackelberg rather than Cournot. Derives conditions under which in this framework Stackelberg competition leads to lower expected welfare, in the case where demand is linear.
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The basic ideas of Cournot and those who came after him are related to the recent work of Nash and his notion of an “equilibrium point.” It is shown that the Nash equilibrium…
Abstract
The basic ideas of Cournot and those who came after him are related to the recent work of Nash and his notion of an “equilibrium point.” It is shown that the Nash equilibrium point incorporates the main contribution of Cournot to the solution of the duopoly problem and that the major criticism that may be made against the Cournot equilibrium may also be made against the Nash equilibrium. It is then indicated to what use this weakness might be put in the study of bargaining.
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I study the economic implications of the world oil market dominated by OPEC and non-OPEC major oil producing countries using a general equilibrium model of trilateral trade with…
Abstract
I study the economic implications of the world oil market dominated by OPEC and non-OPEC major oil producing countries using a general equilibrium model of trilateral trade with oil duopoly. There are three countries and three goods, x, y, and oil (z). Home (H) is endowed with good x . Foreign (F) is endowed with good y and also produces oil (z). Middle (M) is an oil producing country and supplies oil only. I consider two types of oil market structure; (1) Cournot duopoly and (2) perfect competition. I find that Foreign is actually worse off under Cournot duopoly despite being a duopolist for wide range of parameter values that reflect real world situations. This is mainly due to reduced consumption of oil and reduced value of good y endowment under duopoly when Foreign is a net oil exporter or oil autarky, and is also due to worsening terms-of-trade effect under duopoly when Foreign is a net oil importer. Welfare reversal with higher welfare of Foreign under oil duopoly occurs only under highly unrealistic parameter values, and hence the main results of the study remain robust.
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Price‐taking has long been mistakenly regarded as an inferior firm behavior in an imperfectly competitive market. This scenario is challenged when a “Naiver’s Paradox” is shown to…
Abstract
Price‐taking has long been mistakenly regarded as an inferior firm behavior in an imperfectly competitive market. This scenario is challenged when a “Naiver’s Paradox” is shown to exist in an oligopolic market where all firms produce the same product with the same technology (cost structure). It is shown that a firm behaving as a naive price‐taker with ignorance of its output impact on the market will perform no worse or even better than its rivals in terms of profits achieved, where the latter are assumed to take “Cournot”, “relative profit” or other more advanced strategies. More significantly, when the number of firms in the market is large, a price‐taker may achieve higher profit not only in a relative sense, but also in an absolute sense. Such paradoxical outcome is generic, for it results from neither ad hoc assumptions on market structure nor on information sets, but from the conventionally granted “convexity” assumption on cost functions. An analogous phenomenon is observed for oligopsony market.
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The purpose of this paper is to develop and empirically test the conditions that describe adjustment velocities to reach equilibrium under Cournot's duopoly model.
Abstract
Purpose
The purpose of this paper is to develop and empirically test the conditions that describe adjustment velocities to reach equilibrium under Cournot's duopoly model.
Design/methodology/approach
The paper uses a vector error correction (VEC) framework as the basis for determining and testing adjustment velocities using data about cellphone service in Colombia in the time period from 1995 to 2001.
Findings
Empirical evidence suggests the following: first of all, companies operating in the cellphone market behave as cournot's competitors and have constant marginal costs; secondly, cellphone companies operating in the eastern zone of Colombia are in long‐term equilibrium; and lastly, equilibrium adjustment velocities are statistically significant. As predicted by theory, in terms of welfare, the existence of equilibrium in Cournot's model implies that cellphone users in the eastern zone of Colombia enjoy a small consumer surplus.
Originality/value
Testing the microeconomic implications of the equilibrium dynamics of Cournot's model, using a VEC framework.
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Goes back to thinking on the price theory of oligopoly in 1960. In particular, is concerned with Stackelberg’s oligopoly theory. Presents a careful description of the development…
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Goes back to thinking on the price theory of oligopoly in 1960. In particular, is concerned with Stackelberg’s oligopoly theory. Presents a careful description of the development of Stackelberg’s analysis. Takes into account his mathematical appendix. Confronts the theory with game theory and concludes that in a dynamic game a Nash‐Cournot equilibrium will emerge.
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States that the Stackelberg leadership model is rarely used to describe market price determination perhaps because of the lack of a theoretical basis for selecting the minimum…
Abstract
States that the Stackelberg leadership model is rarely used to describe market price determination perhaps because of the lack of a theoretical basis for selecting the minimum size necessary for leadership. Provides structural sufficiency conditions for selecting a unique Stackelberg leader based on the concept of Pareto dominance, in which the structural criterion involves the relative capacity shares of the first and second largest market rivals. Suggests that the Stackelberg price game is a viable static equilibrium construct even though the fringe firms are not atomistic. Applies the Stackelberg model to antitrust merger analysis.
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Rofin T.M. and Biswajit Mahanty
The purpose of this paper is to investigate the impact of price adjustment speed on the stability of Bertrand–Nash equilibrium in the context of a dual-channel supply chain…
Abstract
Purpose
The purpose of this paper is to investigate the impact of price adjustment speed on the stability of Bertrand–Nash equilibrium in the context of a dual-channel supply chain competition.
Design/methodology/approach
The paper considers a dual-channel supply chain comprising a manufacturer, a traditional retailer and an online retailer. A two-dimensional discrete dynamical system is used to examine the Bertrand competition between the retailers. The retailers are assumed to follow bounded rational expectations. Local stability of Bertrand–Nash equilibrium is investigated with respect to the price adjustment speed.
Findings
As the price adjustment speed increases, the stability of Bertrand–Nash equilibrium is lost, leading to complex chaotic dynamics. The results showed that chaotic dynamics deteriorates the profit of the retailers. The authors also found that the chaos can be controlled using an adaptive adjustment mechanism and the retailers enjoy higher profit when the chaos is controlled.
Practical implications
This study helps retail managers to choose an appropriate price adjustment speed to maximize profit.
Originality/value
The heterogeneity of the retailers is not considered in the studies involving dynamics of retailer competition. This paper contributes to the literature by considering the operational difference between a traditional retailer and an online retailer, i.e. price adjustment speed. In addition, the study establishes a link between price adjustment speed and profit.
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