An asymmetric oligopoly model and a method for its empirical application

The purpose of this paper is to develop an asymmetric game-theoretic static oligopoly model suitable for empirical work on oligopolistic markets. Prevailing models in applied research on oligopolistic industries are mainly of the type conjectural variations, Cournot models, although these models are known to be logically flawed from a game-theoretic point of view. As an alternative to these, a Bertrand model with three types of asymmetries is developed: firms can be concurrently asymmetric in cost levels and in the amount of product differentiation, where the impact from product differentiation on a firm's quantity demanded is divided into one relative-price component and one size component. This model is solved for different game-theoretic equilibria solutions. The conduct and performance of individual firms can be analyzed, and welfare effects in terms of consumer-surplus levels are calculated on the firm level. The model contains enough structure for direct use in applied research. A simple method for empirical use of the model is proposed, which minimizes the econometric task: By estimatingn+1 demand elasticities, the asymmetric market-demand structure for then firms will be completely specified.