We present new identification results for nonparametric models of differentiated products markets, using only market level observables. We specify a nonparametric random utility discrete choice model ...of demand allowing rich preference heterogeneity, product/market unobservables, and endogenous prices. Our supply model posits nonparametric cost functions, allows latent cost shocks, and nests a range of standard oligopoly models. We consider identification of demand, identification of changes in aggregate consumer welfare, identification of marginal costs, identification of firms' marginal cost functions, and discrimination between alternative models of firm conduct. We explore two complementary approaches. The first demonstrates identification under the same nonparametric instrumental variables conditions required for identification of regression models. The second treats demand and supply in a system of nonparametric simultaneous equations, leading to constructive proofs exploiting exogenous variation in demand shifters and cost shifters. We also derive testable restrictions that provide the first general formalization of Bresnahan's (1982) intuition for empirically distinguishing between alternative models of oligopoly competition. From a practical perspective, our results clarify the types of instrumental variables needed with market level data, including tradeoffs between functional form and exclusion restrictions.
This paper proposes a model in which identical sellers of a homogeneous product compete in both prices and price frames (i.e., ways to present price information). Frame choices affect the ...comparability of price offers and may cause consumer confusion and lower price sensitivity. In equilibrium, firms randomize their frame choices to obfuscate price comparisons and sustain positive profits. The nature of the equilibrium depends on whether frame differentiation or frame complexity is more confusing. Moreover, an increase in the number of competitors induces firms to rely more on frame complexity, and this may boost industry profits and lower consumer surplus.
This paper was accepted by J. Miguel Villas-Boas, marketing.
We study dynamic price competition in an oligopolistic market with a
mix
of substitutable and complementary perishable assets. Each firm has a fixed initial stock of items and competes in setting ...prices to sell them over a finite sales horizon. Customers sequentially arrive at the market, make a purchase choice, and then leave immediately with some likelihood of no purchase. The purchase likelihood depends on the time of purchase, product attributes, and current prices. The demand structure includes time-variant linear and multinomial logit demand models as special cases. Assuming deterministic customer arrival rates, we show that any equilibrium strategy has a simple structure, involving a finite set of
shadow prices
measuring capacity externalities that firms exert on each other: equilibrium prices can be solved from a one-shot price competition game under the
current-time
demand structure, taking into account capacity externalities through the
time-invariant
shadow prices. The former reflects the transient demand side at every moment, and the latter captures the aggregate supply constraints over the sales horizon. This simple structure sheds light on dynamic revenue management problems under competition, which helps capture the essence of the problems under demand uncertainty. We show that the equilibrium solutions from the deterministic game provide precommitted and contingent heuristic policies that are asymptotic equilibria for its stochastic counterpart, when demand and supply are sufficiently large.
This paper was accepted by Yossi Aviv, operations management
.
A robust result in the literature on strategic incentives is that under quantity competition firm owners induce their managers to make more aggressive quantity choices in the product market than ...under profit maximization. We use a standard framework of successive oligopolies with differentiated products to show that depending on the degree of product substitution, the number of upstream suppliers, and the number of downstream rivals, owners might prefer to punish their manager for additional sales, i.e. to induce them to act soft instead of tough in the product market. We also consider price competition and find that firm and supplier profits can be higher if managers choose prices rather than quantities. Consumer surplus and total welfare are always higher under price competition.
•Under Cournot competition, managers are typically given strategic incentives to make more aggressive quantity choices.•We find a reversal result in a setting with upstream suppliers and differentiated-products rivalry.•Owners induce less aggressive quantity decisions if products are sufficiently differentiated.•Firm and supplier profits can be higher under price competition.
We systematically investigate the relationship between the number of firms in a market and tacit collusion by means of a meta-analysis of the literature on oligopoly experiments as well as two of our ...own experiments with a total of 368 participants. We show that the degree of tacit collusion decreases strictly with the number of competitors in industries with two, three and four firms. Although previous literature could not affirm that triopolies are more collusive than quadropolies, we provide evidence for this fact for symmetric and asymmetric firms under Bertrand and Cournot competition.
The book focuses on the dynamics of nonlinear oligopoly models. It discusses the classical Cournot model with a large variety of demand and cost functions that illustrate the many different types of ...possible best response functions and shows the existence of unique and multiple equilibria. Particular emphasis is placed on the influence of nonnegativity and capacity constraints. Dynamics are introduced under various assumptions for the adjustment process and the analysis of global dynamics is given through some specific examples. The book considers a range of oligopolies and gives conditions for the local asymptotic stability of their equilibria, the impact of constraints is also discussed. The book contains a number of technical appendices that summarize techniques of global dynamics not easily accessible elsewhere.
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 shortrun 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.
Workers’ firm in mixed duopoly Delbono, Flavio; Lanzi, Diego; Reggiani, Carlo
Economic modelling,
20/May , Letnik:
122
Journal Article
Recenzirano
Cooperatives, including those owned and run by workers (Workers Firms, WFs), compete with capitalist firms in oligopolistic industries (mixed oligopolies). We rationalize several facts emerging from ...the empirical research as: The concern of WFs for their employment; the interplay between membership and workplace safeguard within WFs; the different reaction to shocks between WFs and capitalist enterprises. We do so by means of a new model of WFs’ short-run behavior in a mixed duopoly. We innovate in modeling the WF’s objective function by including both profits and employment, and characterize the resulting Nash equilibrium.
•In real industries workers’ firms compete with capitalist companies.•A workers’ firm maximizes a combination of profits and employment.•Consumers benefit from the presence of such a workers’ firm’s behavior.•The workers’ firm may make more profit than the capitalist one.•During downturns the workers’ firm can sacrifice profits to safeguard employment.
In this paper, we model the supply chain network design problem with oligopolistic firms who are involved in the competitive production, storage, and distribution of a homogeneous product to multiple ...demand markets. The profit-maximizing firms select both the capacities associated with the various supply chain network activities as well as the product quantities. We formulate the governing Nash–Cournot equilibrium conditions as a variational inequality problem and identify several special cases of the model, notably, a generalization of a spatial oligopoly and a classical oligopoly problem to include design capacity variables. The proposed computational approach, which is based on projected dynamical systems, fully exploits the network structure of the problems and yields closed form solutions at each iteration. In order to illustrate the modeling framework and the algorithm, we also provide solutions to a spectrum of numerical supply chain network oligopoly design examples.
This paper makes a contribution to game theoretic modeling of competitive supply chain network design problems in an oligopolistic setting.
Abstract Corporate finance has turned into a field where researchers produce what seem like a constant flow of disconnected papers. Theories are never confirmed or refuted. At best, empirical papers ...confirm models without a realistic alternative to refute. The problem is that today's models are either static or have firms that never interact directly with other firms. Most industries are oligopolies. For firms in these industries the competition's actions in the product market are likely of paramount importance. If corporate finance is going to progress, we need papers with testable dynamic oligopoly models. Models where firms compete directly with each other.
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