[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/cor/louvco/2003010.html
   My bibliography  Save this paper

Competition for market share or for market size: oligopolistic equilibria with varying competitive toughness

Author

Listed:
  • d'ASPREMONT, Claude
  • DOS SANTOS-FERREIRA, Rodolphe
  • GÉRARD-VARET, Louis-André
Abstract
We propose a comprehensive concept of oligopolistic equilibrium, allowing for a parametrized continuum of competition regimes, with each firm setting simultaneously both its price and its quantity and facing two constraints: one relative to its share ofthe market, the other relative to the size of the market. The type of solution (i.e. the competition regime) will vary according to the values of the Lagrange multipliers associated with each of these two constraints. In the homogeneous case, the set of oligopolistic equilibria will be shown to include the Cournot solution at tone extreme, when competition is extremely soft, as well as the competitive equilibrium at the other extreme, when competition is extremely tough. The set of equilibria may be characterized as supply function equilibria, with firms strategy spaces restricted to the set of non-decreasing supply functions, or, alternatively, as a selected subset of the outcomes obtained by conjectural variations of a particular type (the compensating ones). The proposed concept of oligopolistic equilibrium is also applicable to an industry supplying a group of differentiated products, the homogeneous product being the limit case corresponding to perfect substitutability.

Suggested Citation

  • d'ASPREMONT, Claude & DOS SANTOS-FERREIRA, Rodolphe & GÉRARD-VARET, Louis-André, 2003. "Competition for market share or for market size: oligopolistic equilibria with varying competitive toughness," LIDAM Discussion Papers CORE 2003010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2003010
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2003.html
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 557-586.
    2. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    3. Hugo Sonnenschein, 1968. "The Dual of Duopoly Is Complementary Monopoly: or, Two of Cournot's Theories Are One," Journal of Political Economy, University of Chicago Press, vol. 76(2), pages 316-316.
    4. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    5. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 549-569, Autumn.
    6. Delgado, Juan & Moreno, Diego, 2004. "Coalition-proof supply function equilibria in oligopoly," Journal of Economic Theory, Elsevier, vol. 114(2), pages 231-254, February.
    7. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-629, June.
    8. Charles A. Holt & David T. Scheffman, 1987. "Facilitating Practices: The Effects of Advance Notice and Best-Price Policies," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 187-197, Summer.
    9. 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.
    10. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 1999. "Competition, Financial Discipline and Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(4), pages 825-852.
    11. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(3), pages 467-492.
    12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    13. Moses Abramovitz, 1938. "Monopolistic Selling in a Changing Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 52(2), pages 191-214.
    14. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414, Elsevier.
    15. d'Aspremont, C & Ferreira, R Dos Santos & Gerard-Varet, L-A, 1991. "Pricing Schemes and Cournotian Equilibria," American Economic Review, American Economic Association, vol. 81(3), pages 666-673, June.
    16. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    17. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
    18. Encaoua, D. & Ulph, D., 2000. "Catching-up or Leapfrogging ? The Effects of Competition on Innovation and Growth," Papiers d'Economie Mathématique et Applications 2000.97, Université Panthéon-Sorbonne (Paris 1).
    19. Grossman, Sanford J, 1981. "Nash Equilibrium and the Industrial Organization of Markets with Large Fixed Costs," Econometrica, Econometric Society, vol. 49(5), pages 1149-1172, September.
    20. Paul M. Sweezy, 1939. "Demand Under Conditions of Oligopoly," Journal of Political Economy, University of Chicago Press, vol. 47(4), pages 568-568.
    21. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    22. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
    23. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
    24. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    25. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, April.
    26. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    27. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
    28. Theo Van De Klundert & Sjak Smulders, 1997. "Growth, Competition and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 99-118, March.
    29. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
    30. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Claude d’Aspremont & Rodolphe Dos Santos Ferreira, 2009. "Household behavior and individual autonomy," Working Papers of BETA 2009-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Claude d’Aspremont & Rodolphe Dos Santos Ferreira & Jacques Thépot, 2007. "Hawks and doves in segmented markets : A formal approach to competitive aggressiveness," Working Papers of LaRGE Research Center 2007-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2013. "The empirical content of Cournot competition," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1552-1581.
    4. Laurent Linnemer, 2022. "Doubling Back on Double Marginalization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 1-19, August.
    5. Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2007. "Free entry equilibria with positive profits: A unified approach to quantity and price competition games," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(2), pages 75-94, June.
    6. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2010. "Oligopolistic competition as a common agency game," Games and Economic Behavior, Elsevier, vol. 70(1), pages 21-33, September.
    7. Claude d’Aspremont & Rodolphe Dos Santos Ferreira, 2016. "Oligopolistic vs. monopolistic competition: Do intersectoral effects matter?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 299-324, June.
    8. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2009. "Price-quantity competition with varying toughness," Games and Economic Behavior, Elsevier, vol. 65(1), pages 62-82, January.
    9. Claude D'Aspremont & Rodolphe Dos Santos Ferreira & Louis‐André Gérard‐Varet, 2010. "Strategic R&D investment, competitive toughness and growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 273-295, September.
    10. Alberto Bucci & Philip Ushchev, 2016. "Specialization vs Competition: An Anatomy of Increasing Returns to Scale," HSE Working papers WP BRP 134/EC/2016, National Research University Higher School of Economics.
    11. Etro, Federico, 2017. "Research in economics and monopolistic competition," Research in Economics, Elsevier, vol. 71(4), pages 645-649.
    12. Marina Sandomirskaia, 2019. "Nash-2 Equilibrium: Selective Farsightedness Under Uncertain Response," Group Decision and Negotiation, Springer, vol. 28(2), pages 275-304, April.
    13. Robert A. Ritz, 2018. "Oligopolistic competition and welfare," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 7, pages 181-200, Edward Elgar Publishing.
    14. Duarte Brito & Margarida Catalão-Lopes, 2023. "Cournot–Bertrand endogenous behavior in a differentiated oligopoly with entry deterrence," Theory and Decision, Springer, vol. 95(1), pages 55-78, July.
    15. Flavio M. Menezes & John Quiggin, 2020. "The Strategic Industry Supply Curve," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 523-555, September.
    16. d’Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2017. "The Dixit–Stiglitz economy with a ‘small group’ of firms: A simple and robust equilibrium markup formula," Research in Economics, Elsevier, vol. 71(4), pages 729-739.
    17. Marina S. Sandomirskaia, 2015. "Price-Quantity Competition of Farsighted Firms: Toughness vs. Collusion," HSE Working papers WP BRP 93/EC/2015, National Research University Higher School of Economics.
    18. Silveira, Douglas & Vasconcelos, Silvinha, 2020. "Essays on duopoly competition with asymmetric firms: Is profit maximization always an evolutionary stable strategy?," International Journal of Production Economics, Elsevier, vol. 225(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2009. "Price-quantity competition with varying toughness," Games and Economic Behavior, Elsevier, vol. 65(1), pages 62-82, January.
    2. Manipushpak Mitra & Rupayan Pal & Arindam Paul & P. M. Sharada, 2020. "Equilibrium Coexistence of Public and Private Firms and the Plausibility of Price Competition," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(2), pages 217-242.
    3. Dermot Leahy & J. Peter Neary, 2021. "When the threat is stronger than the execution: trade and welfare under oligopoly," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 471-495, September.
    4. Louis-André Gérard-Varet & Rodolphe Dos Santos Ferreira & Claude d'Aspremont, 1991. "Concurrence en prix et équilibres cournotiens," Revue Économique, Programme National Persée, vol. 42(6), pages 967-996.
    5. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    6. Claude D'Aspremont & Rodolphe Dos Santos Ferreira & Louis‐André Gérard‐Varet, 2010. "Strategic R&D investment, competitive toughness and growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 273-295, September.
    7. Bloomfield, Matthew J., 2021. "Compensation disclosures and strategic commitment: Evidence from revenue-based pay," Journal of Financial Economics, Elsevier, vol. 141(2), pages 620-643.
    8. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    9. Luís Cabral, 2018. "We’re Number 1: Price Wars for Market Share Leadership," Management Science, INFORMS, vol. 64(5), pages 2013-2030, May.
    10. Fanti, Luciano & Gori, Luca & Mammana, Cristiana & Michetti, Elisabetta, 2014. "Local and global dynamics in a duopoly with price competition and market share delegation," Chaos, Solitons & Fractals, Elsevier, vol. 69(C), pages 253-270.
    11. Cellini, Roberto & Lambertini, Luca & Ottaviano, Gianmarco I.P., 2020. "Strategic inattention, delegation and endogenous market structure," European Economic Review, Elsevier, vol. 121(C).
    12. Anomita Ghosh & Rupayan Pal, 2014. "Strategic trade policy for network goods oligopolies," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-039, Indira Gandhi Institute of Development Research, Mumbai, India.
    13. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 277-290, July.
    14. Piercarlo Zanchettin & Vincenzo Denicolò, 2004. "Competition and Growth in Neo-Schumpeterian Models," Discussion Papers in Economics 04/28, Division of Economics, School of Business, University of Leicester.
    15. Rodolphe Dos Santos Ferreira, 1999. "La relations salaire-emploi sous l'éclairage de la concurrence imparfaite," Cahiers d'Économie Politique, Programme National Persée, vol. 34(1), pages 15-40.
    16. Bucci, Alberto & Parello, Carmelo Pierpaolo, 2009. "Horizontal innovation-based growth and product market competition," Economic Modelling, Elsevier, vol. 26(1), pages 213-221, January.
    17. Robert F. Göx, 1998. "Pretiale Lenkung als Instrument der Wettbewerbsstrategie," Schmalenbach Journal of Business Research, Springer, vol. 50(3), pages 260-288, March.
    18. Nakamura, Yasuhiko, 2014. "Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 105-117.
    19. Lemus, Ana B. & Moreno, Diego, 2020. "Strategic incentives for keeping one set of books under the Arm’s Length Principle," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 78-90.
    20. Arghya Ghosh & Manipushpak Mitra, 2008. "Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms," Discussion Papers 2008-18, School of Economics, The University of New South Wales.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    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:cor:louvco:2003010. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alain GILLIS (email available below). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.