On strategic cost increases in a duopoly

This study determines whether duopolists can profit from imposed cost increases, even if both firms are affected equally. Implicit in any analysis of strategic behavior is the assumption that firms are sufficiently sophisticated to anticipate the new industry equilibrium. Requiring each duopolist to...

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Veröffentlicht in:International journal of industrial organization 1991, Vol.9 (3), p.389-395
Hauptverfasser: Fuess, Scott M., Loewenstein, Mark A.
Format: Artikel
Sprache:eng
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Zusammenfassung:This study determines whether duopolists can profit from imposed cost increases, even if both firms are affected equally. Implicit in any analysis of strategic behavior is the assumption that firms are sufficiently sophisticated to anticipate the new industry equilibrium. Requiring each duopolist to have consistent conjectures abouts its rival's behavior, we show that if the firms' marginal cost curves are sufficiently flat, increasing the slopes of these curves can raise profits. The steeper marginal cost curves encourage ‘regulatory coordination’, that is, the rivals move closer to the joint-profit-maximizing outcome.
ISSN:0167-7187
1873-7986
DOI:10.1016/0167-7187(91)90018-G