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Choice of strategic variables under relative profit maximization in asymmetric oligopoly: non-equivalence of price strategy and quantity strategy

Satoh, Atsuhiro and Tanaka, Yasuhito (2014): Choice of strategic variables under relative profit maximization in asymmetric oligopoly: non-equivalence of price strategy and quantity strategy. Published in: Economics and Business Letters

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Abstract

We consider a simple model of the choice of strategic variables under relative profit maximization by firms in an asymmetric oligopoly with differentiated substitutable goods such that there are three firms, Firm 1, 2 and 3, demand functions are linear and symmetric, marginal costs are constant, there is no fixed cost, Firm 2 and 3 have the same cost function, but Firm 1 has a different cost function. In such a model we show that there are two pure strategy sub-game perfect equilibria. One is such that all firms choose the outputs as their strategic variables, and the other is such that Firm 2 and 3 choose the outputs as their strategic variables, and Firm 1 chooses the price as its strategic variable.

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