Satoh, Atsuhiro and Tanaka, Yasuhito (2016): Choice of strategic variables by relative profit maximizing firms in oligopoly. Published in: Economic Review (経済研究)

PDF
MPRA_paper_71053.pdf Download (242kB)  Preview 
Abstract
This paper studies the choice of strategic variables by firms in a symmetric oligopoly in which each firm produces differentiated goods and maximizes its relative profit that is the difference between its profit and the average profit of the other firms. We consider a two stage game such that in the first stage the firms choose their strategic variables, quantity or price, and in the second stage they determine the values of their strategic variables. We show that the choice of strategic variables is irrelevant in the sense that the equilibrium quantities and prices are the same in all firms whichever each firm chooses in the first stage, so any combination of strategy choice by the firms constitutes a subgame perfect equilibrium in the two stage game.
Item Type:  MPRA Paper 

Original Title:  Choice of strategic variables by relative profit maximizing firms in oligopoly 
English Title:  Choice of strategic variables by relative profit maximizing firms in oligopoly 
Language:  Japanese 
Keywords:  relative profit maximization, oligopoly 
Subjects:  D  Microeconomics > D4  Market Structure, Pricing, and Design > D43  Oligopoly and Other Forms of Market Imperfection 
Item ID:  71053 
Depositing User:  Yasuhito Tanaka 
Date Deposited:  02 May 2016 14:52 
Last Modified:  01 Oct 2019 01:00 
References:  Gibbons, R and K. J. Murphy (1990), ``Relative performance evaluation for chief executive officers'', Industrial and Labor Relations Review, 43, pp. 30S51S. Hackner, J. (2000), ``A note on price and quantity competition in differentiated oligopolies'', Journal of Economic Theory, 93, pp. 233239. KockesenKockesen, L., E.A. Ok and R. Sethi (2000), ``The strategic advantage of negatively interdependent preferences'', Journal of Economic Theory, 92, pp. 274299. Kreps, D.M. and Scheinkman, J.A. (1983), ``Quantity precommitment and Bertrand competition yield Cournot outcomes'', The Bell Journal of Economics, 14, pp. 326337. Lu, Y. (2011), ``The relativeprofitmaximization objective of private firms and endogenous timing in a mixed oligopoly'', The Singapore Economic Review, 56, pp. 203213. Lundgren, C. (1996), ``Using relative profit incentives to prevent collusion'', Review of Industrial Organization, 11, pp. 53350. mmMatsumura, T., N. Matsushima and S. Cato (2013), ``Competitiveness and R\&D competition revisited'', Economic Modelling, 31, pp. 541547. Matsumura, T and A. Ogawa (2012), ``Price versus quantity in a mixed duopoly'', Economics Letters, 116, pp. 174177. Miller, N. H. and A. I. Pazgal (2001), ``The equivalence of price and quantity competition with delegation'', Rand Journal of Economics, 32, pp. 284301. Satoh, A and Y. Tanaka (2014a), ``Relative profit maximization and equivalence of Cournot and Bertrand equilibria in asymmetric duopoly'', Economics Bulletin, 34, pp. 819827. Satoh, A and Y. Tanaka (2014b), ``Choice of strategic variables under relative profit maximization in asymmetric oligopoly: nonequivalence of price strategy and quantity strategy'', Economics and Business Letters, 3, pp. 115126. Schaffer, M.E. (1989), ``Are profit maximizers the best survivors?  a Darwinian model of economic behaviour'', Journal of Economic Behavior and Organization, 12, pp. 2945. Singh, N and X. Vives (1984), ``Price and quantity competition in a differentiated duopoly'', RAND Journal of Economics, 15, pp. 546554. Tanaka, Y. (2001), ``Probability of price and quantity strategies in an oligopoly'', Journal of Mathematical Economics, 35, pp. 409418. Tanaka, Y. (2013), ``Equivalence of Cournot and Bertrand equilibria in differentiated duopoly under relative profit maximization with linear demand'', Economics Bulletin, 33, pp. 14791486. Tasnadi, A. (2006), ``Price vs. quantity in oligopoly games'', International Journal of Industrial Organization, 24, pp. 541 554. VegaRedondo, F. (1997), ``The evolution of Walrasian behavior'', Econometrica, 65, pp. 375384. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/71053 