Oligopoly and entry

This paper investigates the price and nonprice response of a wealth-maximizing leader firm under threat of entry, taking into account the effects of “learning” through cumulative output. The important characteristic of all the comparative statics results is that along the equilibrium trajectory, price and demandincreasing cost expenditures (capitalizable and noncapitalizable) are “substitutes” in the current contribution to wealth, and demand-increasing cost expenditures are “complements” in the current contribution to wealth. That is to say, an increase in price decreases the marginal contribution of demandincreasing cost expenditures to the current contribution to wealth such that to keep the current contribution to wealth constant, expenditures on demandincreasing costs must fall; and conversely, for a price reduction.     

Oligopoly Power in British Industry

In this paper a model of industrial behaviour, encompassing factor demand and output supply decisions by industries, is developed and then estimated for ten industries in the United Kingdom over the period 1954–79. The derivation of the provides, within a consistent framework, insight into conjectural variation, Lerner's index of monopoly power, measures of industrial concentration and thereby makes explict the notion of oligopoly power. The estimates provide an empirical basis for evaluating the structure of industry in the United Kingdom and the estimated measures of oligopoly power are finally compared with more conventional measures of industrial concentration.     

Information Advantage in Cournot Oligopoly

Consider an oligopolistic industry where firms have access to the same technology but are asymmetrically informed about the environment. Even though it is commonplace to think that in this context superior information leads to higher profits, we find that under Cournot competition this is not generally the case: It holds when firms' technology exhibits constant returns to scale, but it does not necessarily hold otherwise. Journal of Economic Literature Classification Numbers: C72, D43, L13.     

Market-Share Import Restraints in Oligopoly

This paper contributes to the theoretical analysis of proportional import restraints; that is, restraints that are defined in terms of percentage market share rather than in terms of volume of imports. It is shown that an increase in the market share of foreign firms from zero has a negative effect locally on domestic welfare. In the case of a domestic oligopoly, domestic firms may prefer a proportional restraint over an equivalent volume restraint.     

Oligopoly and derived demand

In this paper, a formula relating elasticity of demand for a factor to elasticity of final product demand, elasticity of substitution and share of the factor in cost of production is derived for the case of an oligopolistic industry.     

Oligopoly equilibria in electricity contract markets

This paper examines the implications of forward contracting on oligopoly environments by extending the model of Allaz and Vila to an environment with multiple firms and increasing marginal cost. Estimates of key parameters of this model are taken from existing electricity markets to predict the market impact of one round of public contracting, such as those seen in auctions for retail provision and resource procurement. The results imply that, when forward contracts are present, the importance of supplier concentration is greatly magnified relative to other determinants unilateral market power such as demand elasticity.      

Entry Deterrence in a Unionized Oligopoly

We investigate wage determination between an incumbent firm and its labour union under threat from another firm entering its product market. In equilibrium, it may be optimal for a labour union of the incumbent firm to lower its wage demand. This may make it possible for the incumbent firm to maintain a higher employment level, in that the lower wages can help the firm deter the entry of a rival firm. This will yield a higher profit for the incumbent firm and a lower utility level for the labour union compared with those in an equilibrium with no threat of entry.
JEL Classification Numbers: J51, L10     

Partial Privatization in a Differentiated Mixed Oligopoly

A model of differentiated mixed oligopoly is developed to systematically discuss the welfare consequences of partial privatization of a public firm. We analytically derive the optimal degree of partial privatization not only in the short run with restricted entry but also in the long run with free entry. It is shown that the short-run optimal policy is non-monotonic in the degree of love of variety, while the optimal degree of privatization is monotonically increasing in the consumer's preference for variety in the long run.      

Cartel Stability in a Delivered Pricing Oligopoly

Using the spatial price discrimination framework, the relationship between the locations of firms and their ability to collude is investigated. Gupta and Venkatu (2002) show that in a duopoly model agglomeration at one point is the most stable location. We find that agglomeration stabilizes the cartel when there are three firms, too. When there are more than three firms, however, agglomeration of all firms is never the most stable location. With four firms, the following location pattern produces the most stable cartel: two firms at one point and the other two at the farthest point from the first two.     

Demand-Creating R&D in a Symmetric Oligopoly

Spillovers with demand-creating research and development (R&D) activities are investigated by revisiting a widely employed market share rivalry demand structure. Positive technological spillovers may inflict positive or negative side effects on rivals and this has important implications for the effects on innovative efforts of loose or tight R&D cooperation in symmetric oligopolies. A comparison with the effects that apply with linear demand structures and implications for empirical research are also touched upon.     

Mixed Oligopoly and Environmental Policy

We show in this paper that when there are both public and private firms in product markets (a mixed oligopoly) the decision whether to privatize a public firm interacts with the environmental policy of governments. Therefore, the outcome of the decision whether to privatize a public firm may be different if the government internalizes the environmental damage than if the government ignores it. When the government sets a tax to protect the environment, the tax is lower in the mixed oligopoly than in the private one even though the environmental damage is greater. In the mixed oligopoly the marginal cost of the public firm is lower than the market price.     

Imitation and Belief Learning in an Oligopoly Experiment

We examine the force of three types of behavioural dynamics in quantity–setting triopoly experiments: (1) mimicking the successful firm, (2) rules based on following the exemplary firm, and (3) rules based on belief learning. Theoretically, these three types of rules lead to the competitive, the collusive, and the Cournot–Nash outcome, respectively. In the experiment we employ three information treatments, each of which is hypothesized to be conducive to the force of one of the three dynamic rules. To a large extent, the results are consistent with the hypothesized relationships between treatments, behavioural rules, and outcomes.     

Asymmetric Regulation of Identical Polluters in Oligopoly Models

Studies of optimal second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset. Yet, cost asymmetry between oligopoly firms may well give rise to private as well as social gains. A trade-off is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.     

A Stackelberg Oligopoly with Nonidentical Firms

This paper extends the Stackelberg model to include any number of nonidentical firms and demonstrates significant counterintuitive results. For example, entry of an additional firm may increase the quantities and/or profits of some existing firms; it may also increase the total industry profit.     

Strategic Investment Subsidies under Asymmetric Oligopoly

This paper examines strategic investment subsidies in an international oligopoly. A general oligopoly model is constructed in which firms compete in two stages and governments commit to investment subsidies prior to firms' actions. The paper considers asymmetry among firms that arises from the nature of goods they produce rather than their cost structures. When firms produce asymmetrically differentiated goods, it is found that a change in the number of foreign competitors may alter the sign of the optimal unilateral investment subsidy. An example of policy reversal is provided in the case of strategic research and development subsidies for a quality‐differentiated industry.     

Welfare Effects of Commodity Taxation in Cournot Oligopoly

In the context of Cournot oligopoly with possibly asymmetric costs, this paper presents necessary and sufficient conditions for a small specific tax and a small ad valorem tax to increase total surplus. The paper also shows that a shift from a small specific tax to a small ad valorem tax, leaving the tax revenue unchanged, increases the total surplus.
JEL Classification Numbers: D43, H21, L13.     

Learning in Cournot Oligopoly – an Experiment

This experiment was designed to test various learning theories in the context of a Cournot oligopoly. We derive theoretical predictions for the learning theories and test these predictions by varying the information given to subjects. The results show that some subjects imitate successful behaviour if they have the necessary information, and if they imitate, markets are more competitive. Other subjects follow a best reply process. On the aggregate level we find that more information about demand and cost conditions yields less competitive behaviour, while more information about the quantities and profits of other firms yields more competitive behaviour.     

Oligopoly equilibria in exchange economies: a limit theorem

In a pure exchange economy, agents have the possibility of behaving strategically by putting only a part of their initial endowments on the market. An oligopoly equilibrium is defined to be a Nash equilibrium of the game in which agents choose simultaneously quantities to be put on the market. It is proved that under standard hypotheses, the oligopoly equilibrium leads to the competitive equilibrium when the economy is replicated an infinite number of times. Received: May 26, 1999; revised version: April 3, 2000