punishment strategies in repeated games evidence from experimental markets abstract an experiment is designed to provide a snapshot of the strategies used by players in a repeated price competition game with a random continuation rule one hundred pairs of subjects played the game over the internet with subjects having a few days to make their decisions in each round occasionally subjects are asked to enter one period ahead pricing strategies instead of prices according to the elicited strategies between 90 and 95 of subjects punish less harshly in their initial response to a deviation than implied by the grim trigger strategy and do so in a way that depends on the size of the other subject s deviation future earnings are highest for subjects adopting the tit for tat strategy even after controlling for a subject s past earnings punishment strategies are generally softer and more graduated than implied by a grim trigger strategy and do better as a result

price wars in price setting supergames this paper presents a method of generating price wars in price setting supergames the market is one where symmetric oligopolists produce a differentiated product and use price as a strategic variable prices are posted and can be observed by all there is thus little uncertainty or scope for secret price cutting nevertheless price wars occur they are precipitated by periodic but infrequent demand shocks firms use the wars to learn about changed conditions in the market so that they can calculate the new stationary nash equilibrium learning is modeled in a bayesian fashion via the kalman filter copyright 1989 by the london school of economics and political science

multi objective stochastic programming for portfolio selection abstract generally in the portfolio selection problem the decision maker dm considers simultaneously conflicting objectives such as rate of return liquidity and risk multi objective programming techniques such as goal programming gp and compromise programming cp are used to choose the portfolio best satisfying the dm s aspirations and preferences in this article we assume that the parameters associated with the objectives are random and normally distributed we propose a chance constrained compromise programming model cccp as a deterministic transformation to multi objective stochastic programming portfolio model cccp is based on cp and chance constrained programming ccp models the proposed program is illustrated by means of a portfolio selection problem from the tunisian stock exchange market

on multiplicity of consistent conjectures in free entry oligopoly abstract if we allow free entry into oligopoly we should take into account the fact that the number of firms is variable therefore we should include it in the arguments of the conjectural variation functions and consider a conjectural variation for the change in the number of firms we will show that for such conjectural variation functions there exist multiple consistent conjectures equilibria in free entry oligopoly

financial portfolio management through the goal programming model current state of the art abstract since markowitz 1952 formulated the portfolio selection problem many researchers have developed models aggregating simultaneously several conflicting attributes such as the return on investment risk and liquidity the portfolio manager generally seeks the best combination of stocks assets that meets his her investment objectives the goal programming gp model is widely applied to finance and portfolio management the aim of this paper is to present the different variants of the gp model that have been applied to the financial portfolio selection problem from the 1970s to nowadays

cournot oligopoly reconsidering cournot the cournot equilibrium is consistent this article uses an infinite regress model of firm level decisions to find a rational expectations equilibrium for a duopoly and to relate concepts of conjectural variations and consistency to the cournot equilibrium the model derives a conjectural variation instead of assuming it in particular the cournot equilibrium is shown to be consistent in the usual sense of the literature the conflict between notions of consistent conjectures and the cournot equilibrium results from a compounding problem inherent in the earlier models we extend these results to the n firm problem alternatively the article can be viewed as providing a purely static model that generates the cournot equilibrium without reference to conjectures or quasi dynamics

a fuzzy goal programming approach to portfolio selection abstract portfolio selection is a usual multiobjective problem this paper will try to deal with the optimum portfolio for a private investor taking into account three criteria return risk and liquidity these objectives in general are not crisp from the point of view of the investor so we will deal with them in fuzzy terms the problem formulation is a goal programming g p one where the goals and the constraints are fuzzy we will apply a fuzzy g p approach to the above problem to obtain a solution then we will offer the investor help in handling the results

entry stackelberg equilibrium and reasonable conjectures we show that the consideration of stackelberg equilibrium and reasonable conjecture equilibria r c e provide some foundation to the concept of limit pricing

agricultural support policies in imperfectly competitive markets why market power matters in policy design most agricultural policy analysis assumes that markets are perfectly competitive despite increasing evidence to the contrary we demonstrate that the interaction of market power and government intervention may lead to outcomes that are counter to key results of policy analysis for perfectly competitive markets we show that market power may reduce or eliminate entirely the net welfare benefits from removing two traditional support mechanisms price floors and deficiency payments and may increase considerably the government s cost of implementing either of them accordingly optimally designed price support measures may improve welfare in the presence of downstream oligopoly and or oligopsony power copyright 2011 oxford university press

non price strategic behavior the case of bank branches abstract we perform an empirical study of banks branching decisions as a strategic non price variable in an oligopolistic setting using panel data of banks from norway we find clear evidence that banks act strategically in their branching decisions taking into consideration the future response from rival banks the analysis is applied to a unique data set which covers the entire banking sector during both pre and post banking crisis periods where very different types of conduct are found in each of these periods both for banks and borrowers moreover we find that a bank specific branch network does not confer externality on other banks as a result branch network affects only market shares but not market size

extending cost benefit analysis for energy investment choices abstract although cost benefit analysis is still widely practised because it addresses real and continuing problems the technique has been frequently called into question the present paper identifies three major limitations in the technique and offers suggestions for improvements while costs and benefits of energy investments have several dimensions cba attempts to give all effects an economic value this often requires arbitrary and subjective judgments which have discredited the technique it is proposed that cba should be extended from the single economic dimension to include three others environmental technical and the analysis of risk it is suggested that important subjective judgments should be made by the ultimate political decision maker and not by the analyst

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

imperfect information and dynamic conjectural variations this article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve the analysis develops a two period cournot framework under the assumptions that demand shifts are positively serially correlated that firms never directly observe the demand curve and that firms never observe the previous quantity decisions of rivals firms do draw inferences about the position of the demand curve from past observations on prices consequently the current output of a firm will influence the current market price which will then influence rivals inferences about future demand the future output decisions of rivals will respond accordingly the theory predicts negative dynamic conjectural variations essentially a firm perceives that an increase in its output will lower the current market clearing price which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future

on the sensitivity of mean variance efficient portfolios to changes in asset means some analytical and computational results tbis paper investigates the sensitivity of meanvariance mv efficientportfolios to changes in the means of individual assets when only a budget constraint is imposed on the investment problem the analytical results indicate that an mv efficient portfolio s weights mean and variance can be extremely sensitive to cbanges in asset means when nonnegativity constraints are also imposed on the problem the computational results confirm that a positively weigbted mv efficient portfolio s weigbts are extremely sensitive to cbanges in asset means but the portfolio s returns are not a surprisingly small increase in the mean of just one asset drives balf the securities from the portfolio yet the portfolio s expected return and standard deviation are virtually uncbanged this paper supersedes should investors hold well diversified portfolios financial support from the natural science and engineering research council of canada is gratefully acknowledged we also acknowledge the most capable assistance of ruth cornale simon ng jean marc potier and frederick shen the paper was presented at simon fraser university and the western finance association meetings in san diego we thank the participants especially stephen brown john herzog john heaney ray koopman and bruce lehmann and the editors jon ingersoll and chester spatt for

a dynamic theory of conjectural variations this paper explores the relationship between dynamic oligopolistic competition and static conjectural variations equilibria using an infinite horizon adjustment cost model the author demonstrates that any steady state closed loop subgame perfect equilibrium coincides with a conjectural variations equilibrium in the case of linear demand and quadratic costs the dynamic conjectures consistent with closed loop steady state equilibria are negative constant symmetric and vary continuously with the discount rate and the adjustment cost parameter in an interval between the static consistent conjectures and zero cournot copyright 1992 by blackwell publishing ltd

strategic investment and conjectural variations abstract this paper analyzes investment decisions under the alternative assumptions of competitive collusive open loop non cooperative and feedback non cooperative behavior steady state capital stocks prices and outputs are obtained and compared the paper shows that one of the linear feedback equilibrium decision rule coefficients is a dynamic version of a contemporaneous conjectural variation the same decision rule coefficients are shown to imply a particular value for the contemporaneous conjecture the implied conjecture embodies subgame perfection and approaches the competitive value as the number of firms in the industry increases

bounded rationality dynamic oligopoly and conjectural variations abstract we propose a dynamic model of n firm oligopoly that provides a logically consistent reinterpretation of conjectural variations each firm solves a dynamic optimization problem believing that the other firms will alter their future choices in proportion to its own current change these beliefs adapt in light of observed behavior we show that steady state equilibria can range from complete cooperation to predatory play and provide conditions under which the firms behavior and beliefs converge to a steady state the sufficient conditions for stability are more easily satisfied the smaller the cross effects among firms through demand or belief parameters they are also more easily satisfied in a price setting than in a quantity setting differentiated products model

on consistency of conjectures in the private provision of public goods abstract this paper shows that the condition recently given by cornes and sandler for consistency of conjectures in a non nash model of voluntary public good provision is neither necessary nor sufficient it gives an alternative condition which is both necessary and sufficient for consistency of conjectures and may be used to compute appropriate conjectural variations in communities of arbitrary size if a symmetric equilibrium exists

price reactions to new competition a study of us luxury car market 1986 1997 abstract this paper examines the questions of whether the incumbent responds to entry and which firms respond to entry in an industry by using a data sample of the us luxury car market during the period of 1986 and 1997 the statistical analysis finds that the incumbent s response varies across firms but some group of firms responds to entry similarly in particular this paper finds that the german exporters of luxury cars respond significantly to the entry of a japanese rival in the us market similarly by reducing their prices and mark ups the extent to which they respond to entry become greater as the japanese firm s market share increases the statistical test accepts the hypothesis of the equality of coefficients among the german firms but rejects the hypothesis when both the german and british firms are included in the sample

trade liberalization in oligopolistic industries the quota case abstract this paper analyzes the short and long run effects on domestic price and output of partially liberalizing quota restrictions in a general model of oligopolistic interactions it is shown that perverse outcomes are possible in a number of cases including that of rational conjectures a larger quota may result in an increase in domestic output in the short run and a higher price in the long run the relationship between oligopolistic conjectures and the number of firms in the industry is critical in determining the long run outcome

subgame perfect reaction function equilibria in discounted duopoly supergames are trivial abstract this paper is concerned with infinitely repeated duopoly games with discounting a question which has been open since friedman s rev econ stud 35 1968 257 272 reaction function article is settled for a general class of games the question is wheter nontrivial reaction function equilibria can be subgame perfect this question is answered in the negative such equilibria must be trivial in the sense of prescribing the stage game noncooperative equilibrium actions in every period independent of prior history

repeated contests a general parameterization abstract contests often involve players vying for the same prize year after year this paper characterizes equilibrium effort both individual and aggregate in a general parameterization of such repeated contests

are rational conjectures rational the concepts of rational conjectures and reasonable conjectures are critically reviewed it is shown that their operation depends crucially on an invisible non optimizing deus ex machina hence these concepts are not really suitable for understanding competition among optimizing firms in addition the widely claimed fact that bertrand conjectures are locally rational conjectural variations is shown to be erroneous the message of this paper should be plain from the title it reflects a disillusionment with the concepts of rational conjectures and reasonable conjectures for helping us understand economic interactions under imperfect competition on the face of it these concepts seem to offer the economic modeller some useful tools hence this paper is in some sense intended as a friendly warning to other economic modellers there are inherent conceptual weaknesses in these concepts that do not become apparent until one begins to penetrate their inner logic to make plain the weaknesses of rational conjectures and reasonable conjectures we shall concentrate on the simplest application of the ideas to duopoly and we shall illustrate our points using the classical cournot example of duopolists facing a common linear demand curve and having the same constant marginal cost the reader may know that this example figures prominently in the rational conjectures literature it being shown that bertrand conjectures are locally rational conjectural variations we shall see in section vi that this claim is not really valid although widely asserted but our real message is on a different plane and pertains to the usefulness of the concepts in general

the incidence of entry in 3 oligopoly models three of the least satisfactory features of oligopoly theory are that the beliefs of firms are frequently arbitrary that the solution concept which reflects these beliefs used is taken as exogenous and that its role in conditioning the results is neglected the first criticism has been resolved to a large extent in the recent consistent conjectures literature bresnahan 1981 perry 1981 ulph 1983 for critical views see laitner 1980 or boyer and moreaux 1983 which characterizes equilibria having the property that firms hold locally correct conjectures about rivals reactions yet however satisfactory they are on the question of arbitrariness consistent conjectures unfortunately run afoul of the exogeneity criticism for it is by no means clear how firms come to possess the information needed to form such beliefs quite clearly the complete answer to the exogeneity question lies in models of information acquisition and evaluation by firms nevertheless it would be unwise to abandon static models wholesale for they can be useful if supplemented by a set of comparative static exercises revealing how variations in the solution concept itself conditions the results this paper advances the case for such a comparative statics with respect to solution concept primarily by discussing a somewhat unusual illustration much recent work has been devoted to entry and its effects on market performance but relatively little is known about how putative entrants are attracted to the market how much entry occurs in particular types of markets how fast it occurs how incumbents anticipate putative entrants and their speed of reaction thus while we have some feel for how variations in solution concept affect the market share or profits of a given set of firms in post entry equilibria e g shubik 1980 ulph and folie 1980 dixit 1980 spulber 1981 we have very little in the way of answers to questions like is there more entry when firms play cournot than when one firm acts as a stackelberg leader vis a vis the rest or does successful entry and even displacement of relatively inefficient incumbents occur more or less rapidly when firms behave as cournot than when industry conduct is described by some other solution concept such questions are natural for example if one is interested in the persistence of market power and its speed if any of decline section ii contains some slightly startling results which emerge from considering what is very much a special case of an entry process while the main interest in the results arises because they underline in a particularly emphatic manner the sort of interesting phenomena that can be revealed by such comparative static exercises i shall in section iii pursue these results as having interest in their own right and speculate on their robustness to various extensions of the model section i commences the whole discussion with some methodological remarks

looking at the cost side of monopoly welfare loss under oligopoly is defined as that part of consumer surplus which is lost and not regained by higher profits in a model with asymmetric firms this implies that the total welfare loss consists of the deadweight loss triangle plus a cost side inefficiency effect due to the fact that in imperfect markets not all firms utilize the lowest cost technique using a flexible cv model we calculate these effects empirically for two relatively homogeneous industries pulp paper and cement the deadweight loss triangles are shown to be smaller than the cost difference effect the staircase for these industries

tax incidence under imperfect competition comment abstract delipalla and o donnell 2001 contains a formula for the incidence of specific and ad valorem taxes in a conjectural variation oligopoly model with potentially asymmetric firms the formula is incorrect we derive the correct formula and provide a discussion of the error and its implications for empirical studies of pass through

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

performance of portfolios optimized with estimation error we explain the poor out of sample performance of mean variance optimized portfolios developing theoretical bias adjustments for estimation risk by asymptotically expanding future returns of portfolios formed with estimated weights we provide closed form non bayesian adjustments of classical estimates of portfolio mean and standard deviation the adjustments significantly reduce bias in international equity portfolios increase economic gains and are robust to sample size and to nonnormality dominant terms grow linearly with the number of assets and decline inversely with the number of past time periods under suitable conditions sharpe ratio maximizing tangency portfolios become more diversified using these approximation methods it may be possible to assess before investing the effect of statistical estimation error on portfolio performance

quick responses in duopoly ensure monopoly pricing if firms in a homogeneous duopoly game can respond with negligible delay to their rival s price changes equilibrium is unique at the monopoly price

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

conjectural variations equilibrium in a mixed duopoly we study a mixed duopoly model in which a state owned public firm maximizing domestic social surplus and a private foreign firm compete under general enough assumptions we first justify the concept of conjectural variations equilibrium cve applied to the model by demonstrating concavity of the expected profit function of each agent next we establish existence and uniqueness results for the conjectural variations equilibrium in the described duopoly a particular case of a cve with constant influence conjecture coefficients is also examined

electricity planning under uncertainty risks margins and the uncertain planner abstract the uncertainty of plant performance and unpredictable demand for electricity has always been a problem for power system planners this consideration has come to dominate all others and this article presents a methodology which incorporates many of the uncertainties of power system planning in one model this model is then used to show that proposals to greatly lower planning margins entail high risks the effect of uncertainty on plant mix is shown to lead to greater installation of middle merit plant price regulation as a means of equilibrating supply and demand under uncertainty is shown to be of limited but distinct application

perfectly flexible pricing in a homogeneous market so as to present our reappraisal of the implications of perfect price flexibility in the simplest possible framework we turn to marshall s 1920 book v corn market example where stocks offered for sale already exist at the outset and where equilibrium is established solely through price adjustment in this context marshall simply took it for granted that the competitive price is the unique equilibrium price op cit p 278 indeed it is clear that if prices are set by the sellers and no seller can change a quoted price then a uniform price above the competitive

the inconsistency of consistent conjectures abstract conjectural variation models have been criticized because firms are right for the wrong reasons and because possible equilibria are abundant lately several papers have attempted to meet these difficulties by some condition of consistency or rationality on the conjectural variation this paper shows that stronger versions of such conditions lead into paradoxes while the weaker forms are of little use in solving the conceived problems the original cournot assumption actually satisfies consistency enterions the problems with consistent conjectures illuminates fundmental problems with too demanding information assumptions like perfect foresight such assumptions may create non trivial structures of self reference

energy planning under uncertainty implications for coal processing and oil stocking policy abstract this study presents a method for quantifying the benefits of various ways of anticipating energy shortages the method is applied to coal liquefaction and oil stocking the study concludes that uncertainty about future energy supplies can improve the prospects for coal processing the results for oil stocking are consistent with actions already taken by government indicating that the assumption and methodology of the study are consistent with revealed preferences

consistent linkages across markets abstract consistent conjectures are derived within and across markets in a two market duopoly when marginal costs are not constant intermarket linkages arise which can have an adverse impact on competition this is the first formal derivation of such linkages in a static model with full information

rational conjectures in the theory of oligopoly abstract the paper employs the notion of rational conjectural equilibrium to remove the arbitrary nature of conjectures about rivals reactions which characterises the traditional non cooperative theory of oligopoly a general definition of these equilibria is given and the concept is then applied to a simple duopoly model the standard models of perfect competition monopoly limit price dominant firms are shown to emerge as special cases of rational conjectural equilibria

scale economies consistent conjectures and teams this paper models the behavior of team members in a consistent conjectures equilibrium when subject to scale economies team members produce more than nash and when subject to scale diseconomies they produce less than nash moreover even when effort levels of team members are perfect substitutes in production they can be strategic complements in the face of scale economies finally with sufficient scale economies the complementarity eliminates free riding and the team optimum is obtained

consistent conjectures in monopolistic competition abstract models of monopolistic competition such as dixit and stiglitz and spence typically assume firms take market variables as parametric this conjectural variation corresponds to chamberlin s large group approximation although these models need not have a large number of firms the present note following perry shows that consistent conjectures about the size and number of rivals can provide a more satisfactory basis for this assumption

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

successful leadership in global public good provision incorporating behavioural approaches in the standard model of voluntary public good provision and other game theoretic models climate friendly leadership of a country is not successful a unilateral increase of this country s greenhouse gas abatement measures i e contributions to the global public good of climate protection will not lead to a positive reaction by the other countries but instead trigger a reduction of their abatement efforts and thus a crowding out effect in this paper it is shown how this undesired consequence need no longer occur when elements of behavioral economics are incorporated in the otherwise standard model of public good provision in particular strategic complementarities between the public good contribution of the leading country and those of the follower may result either if the follower has specific non egoistic or other regarding preferences or if the leader s contribution positively affects the follower s beliefs i e his conjectural variations about the leader s behaviour

endogenous conjectural variations in oligopoly abstract conventional oligopoly theories provide no mechanism for oligopolists to learn from their experience of other firms behavior in forming conjectural variations this paper explores two approaches to the solution of this problem in the first the consistent conjectures approach oligopolists passively react to changes in other firms outputs so as to keep their own profits at a maximum other firms correctly anticipate these reactions in the second approach the matching behavior approach firms actively choose reactions which will induce other firms to reduce their outputs again these reactions are correctly anticipated by the other firms the implications of these alternative models are derived and contrasted with the implications of the cournot and joint profit maximization models

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

conjectural variation and the indeterminancy of duopolistic equilibria the purpose of this article is to investigate the basic premise that the various oligopoly models result in an unacceptable divergence in market equilibria in the first half of the paper a theoretical model of a static conjectural variation duopoly with symmetric costs is presented using this model we define the coefficient of dispersion of equilibria and show that it is solely a function of the basic conditions of the market costs and demand this result is of empirical significance because it is possible to determine ex ante from easily observable information the extent to which conjectural variation market conduct will influence market equilibrium variation conjecturale et indetermination des equilibres duopolistiques l objectif de cet article est d analyser la proposition fondamentale que les divers modeles d oligopole se resolvent en une divergence inacceptable d equilibres de marche dans la premiere partie du m6moire on presente un modele theorique de duopole avec variation conjecturale statique et couits symmetriques avec l aide de ce modele on definit le coefficient de dispersion des equilibres et on montre qu il est seulement fonction des conditions du marche cofits et demande ce resultat a une importance empirique significative parce qu il devient possible de determiner ex ante a partir de renseignements facilement observables jusqu a quel point la variation conjecturale la conduite sur le marche va influencer l equilibre du marche

conjectural variations as a reduced form abstract the conjectural variations solution is usually seen as the reduced form of the equilibrium of an unmodeled dynamic game we show that in linear oligopolies and for an open set of values of the discount factor this correspondence holds exactly for a quantity setting repeated game with minimax punishments during t periods

conjectures rationality and duopoly theory abstract the main results of this paper are twofold first we show that any sustainable pair of production programs can be obtained as a locally rational conjectural equilibrium for appropriately chosen linear conjectural functions for the duopolists then we show that constant conjectural variations duopoly models could in a sense be made rational if the value of the conjectural variation is considered not as a constant but rather as a specific value taken at the equilibrium

consistent conjecture and free entry oligopoly a general analysis abstract this paper shows that in an oligopoly model that allows free entry only competitive conjecture is consistent for any demand and cost functions and for any conjectural variation function that depends on the firm s own output and the outputs of the other firms

the electronic mail game strategic behavior under almost common knowledge the paper addresses a paradoxical game theoretic example which is closely related to the coordinated attack problem two players have to play one of two possible coordination games only one of them receives information about the coordination game to be played it is shown that the situation with almost common knowledge is very different from when the coordination game played is common knowledge

vancouver s gasoline price wars an empirical exercise in uncovering supergame strategies this paper uses a unique data set to determine which dynamic model of tacit collusion best describes behaviour in a particular industry the area investigated is a region of the vancouver british columbia retail gasoline market players are service station managers who compete daily firms choose price in each period using strategies that depend on prices chosen in the previous period periodically unanticipated demand shocks precipitate price wars when shocks occur the firms in the market must determine the new demand conditions and adjust their strategies from an econometric point of view slopes of intertemporal reaction functions are latent variables the resulting system of equations with time varying parameters is estimated via the kalman filter different repeated game oligopoly models correspond to different transition matrices for the latent variables the models can thus be assessed in terms of their power to explain firm behaviour in this market

the evolution of consistent conjectures in this paper we model the evolution of conjectures in an economy consisting of a large number of firms which meet in duopolies the duopoly game is modelled by the conjectural variation cv model an evolutionary process leads to more profitable conjectures becoming more common payoff monotonic dynamics under this class of selection dynamics convergence occurs to a small set of serially undominated strategies containing the consistent conjecture this set can be made arbitrarily small by appropriate choice of the strategy set if the game is dominance solvable then the dynamics converge globally to the unique attractor

conjectural variations strategies in accelerated cournot games abstract a family of constant conjectural variations strategies is defined and examined in the natural context of infinitely repeated cournot duopoly games with discounting it is shown that any pair of linear reaction functions in the family gives rise to a unique pair of quantities in stationary equilibrium as the conjectures and discount parameter vary the sum of the stationary quantities will vary anywhere between the competitive and the monopoly outcomes equilibrium is strongly stable and credible in the sense of exhibiting a variation of selten s subgame perfection provided that firms can react quickly enough to one another s actions

adapting behaviors through a learning process this paper concerns the concepts of conjectures and reactions of agents in a dynamic context a framework where agents form conjectures on how the other agents would react to their actions and update this belief according to observations they decide based on this conjecture without knowing profit functions of other agents agents somehow learn about the behavior including the conjectures of the other agents we show that some type of consistency of these conjectures spontaneously appears we discuss the pareto optimality and the local stability of the strategies obtained in the long run and analyze the example of cournot s oligopoly

tacit collusion with price matching punishments abstract tacit collusion is explored under a strategy in which loosely speaking firms match the lowest price set by any firm in the previous period conditions are provided under which this strategy supports collusive outcomes in a subgame perfect equilibrium in contrast to traditional results the highest collusive price is always lower than the monopoly price it corresponds to the unique nash equilibrium price when upward and downward price deviations are matched our paper provides a game theoretic interpretation of the old kinked demand curve theory which unlike earlier attempts does not depart from standard timing assumptions to do so

optimal tariffs in consistent conjectural variations equilibrium abstract this paper analyzes the determination of the optimal tariff under the assumption of consistent conjectural variations ccv a general characterization of the ccv equilibrium is given we show that i there are in general a multiplicity of each equilibria and ii under certain restrictions the cournot equilibrium which is based on the assumption of no retaliation can also be a ccv equilibrium by contrast free trade is never a ccv equilibrium finally the ccv equilibrium is solved explicitly in a simple example

competition market selection and growth we study the effect of the competitive selection process on the economy s rate of growth in an extension of standard quality ladder models of endogenous growth we allow for the possibility that in each period several asymmetric firms representing an endogenously determined number of past innovators may be simultaneously active in an industry stronger competitive pressure then has conflicting effects on the incentive to innovate lowering prices but also selecting the more efficient firms we show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices

international policy design and the sustainability of policy bargains events of the past decade and the persistence of the worldwide recession have underlined the interdependence of the major economics competitive devaluations first illustrated the dangers of unilateral decisions and politicians have regularly called for concerted policies since the bonn economic summit in 1978 economic theory has shown that coordinated policies can bring gains but the question of whether those gains will be significant and how they will be distributed remains unanswered remarkably few empirical results on how interdependence should affect policy design or even on the signs of spillovers between economies have been produced this paper estimates the costs of uncoordinated policies to the us and eec economies and also the potential gains and risks in cooperation it focuses particularly on the process of determining rational policy bargains and whether in an international context such bargains are likely to be sustainable

mixed oligopoly with consistent conjectures abstract in this paper we consider a model of mixed oligopoly with conjectural variations equilibrium cve the agents conjectures concern the price variations depending upon their production output s increase or decrease we establish existence and uniqueness results for the conjectural variations equilibrium called an exterior equilibrium for any set of feasible conjectures to introduce the notion of an interior equilibrium we develop a consistency criterion for the conjectures referred to as influence coefficients and prove the existence theorem for the interior equilibrium understood as a cve with consistent conjectures to prepare the base for the extension of our results to the case of non differentiable demand functions we also investigate the behavior of the consistent conjectures in dependence upon a parameter representing the demand function s derivative with respect to the market price

demand for coffee in sweden the role of prices preferences and market power there is a widespread belief that consumer coffee prices are high relative to bean prices and that lower consumer prices would lead to substantial increases in bean exports from third world countries this issue is evaluated by analysing how retail prices preferences and market power influence coffee demand in sweden a demand function is estimated for the period 1968 2002 and used together with information on import prices of coffee beans to simulate an oligopoly model this approach gives estimates of the maximum average degree of market power and shows how coffee demand would react to reductions in marginal cost to its minimum level the maximum level of market power is found to be low but it generates large spreads between consumer and bean prices because the price elasticity has low absolute values moreover the impact of a price decrease would be small because long run coffee demand is dominated by changes in the population structure in combination with different preferences across age groups hence a change to perfect competition would only have a negligible effect on bean imports

existence of consistent conjectures reply arthur robson s excellent comment introduces a new formulation of the problem of consistent conjectures my reply uses the new formulation in order to resolve robson s troubling example of nonexistence and to make the problem clearer it also shows why my original approach was sensible only for the linear demand curve case a slightly more general approach used here has consistent conjectures in robson s quadratic inverse demand example

value of information in portfolio selection with a taiwan stock market application illustration abstract despite many proposed alternatives the predominant model in portfolio selection is still mean variance however the main weakness of the mean variance model is in the specification of the expected returns of the individual securities involved if this process is not accurate the allocations of capital to the different securities will in almost all certainty be incorrect if however this process can be made accurate then correct allocations can be made and the additional expected return following from this is the value of information this paper thus proposes a methodology to calculate the value of information a related idea of a level of disappointment is also shown how value of information calculations can be important in helping a mutual fund settle on how much to set aside for research is discussed in reference to a taiwan stock exchange illustrative application in which the value of information appears to be substantial heavy use is made of parametric quadratic programming to keep computation times down for the methodology

on strategic cost increases in a duopoly abstract 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

consistent conjectures in a value maximizing duopoly recent literature on consistent conjectures has established that under a variety of conditions only competitive behavior is rational rationality or consistency is defined in this literature as the condition that the slope of a firm s profit maximizing reaction function must equal the conjecture made about the firm s reactions by its rivals this concept of consistency is due to bresnahan 5 who uses it to select among the many possible conjectural equilibria in duopoly as defined by bowley 3 perry 24 extends the duopoly analysis to the case of an arbitrary fixed number of identical firms as well as to the case of free entry and exit both papers show that only the bertrand conjecture in which firms accommodate rivals output changes by making equal and opposite changes is consistent when marginal costs are constant in addition perry shows that this result also holds when entry and exit are free the bertrand conjecture is identified with competitive behavior since it implies price taking and marginal cost pricing the equivalence that both papers establish between consistent conjecture equilibrium cce and competitive equilibrium under constant marginal cost may have important practical implications johnston summarizes his thorough survey of cost functions with the comment two major impressions however stand out clearly the first is that the various short run studies more often than not indicate constant marginal cost and declining average cost as the pattern that best seems to describe the data that have been analyzed 15 168 therefore the results of bresnahan and perry would seem to apply to a wide range of observed behavior making a strong theoretical case that much economic activity is truly competitive regardless of the number of firms 2 even when marginal costs are not constant and the number of firms is fixed the implication of the consistent conjectures hypothesis for profit maximizing firms is that behavior is more competitive than coumot this result in itself is important since recent work has indicated that cournot equilibrium approaches the competitive limit in the case of large economies see for

the escape from conjectural variations the consistency condition in duopoly theory from bowley to fellner the paper covers the 1924 1949 debate on the conjectural variations approach to duopoly theory and focuses on the evolution of economists views about the imposition of a consistency condition on the firms conjectures the main point is that although the consistency condition entailed a notion of interactive equilibrium that resembled the modern correct conjectures equilibrium most neoclassical economists of the time refused to apply it because of the excessive requirements it imposed upon the firms forecasting abilities and because of its failure to encompass an explanation of the equilibrating process