Timing of decisions in oligopoly games
Price versus quantity and sequential versus simultaneous decisions.
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The two main structural variations in oligopoly theory and its applications are the determination of the right order of moves and the selection of the appropriate decision variable. Concerning the choice of the right decision variable, it is shown that for markets with one large firm and many small firms the difference between the equilibrium outcomes of price-setting and quantity-setting games will be minimal. Moreover, if firms are free to select their decision variables, then either the Cournot game or Forchheimer's model will emerge. Concerning the timing problem, the endogenous order of m...
The two main structural variations in oligopoly theory and its applications are the determination of the right order of moves and the selection of the appropriate decision variable. Concerning the choice of the right decision variable, it is shown that for markets with one large firm and many small firms the difference between the equilibrium outcomes of price-setting and quantity-setting games will be minimal. Moreover, if firms are free to select their decision variables, then either the Cournot game or Forchheimer's model will emerge. Concerning the timing problem, the endogenous order of moves for capacity-constrained Bertrand-Edgeworth triopolies and for Bertrand-Edgeworth duopolies with sufficiently asymmetric cost functions will be determined. Timing of decisions within the price-setting framework results in many cases in known forms of price leadership, and thus, several game-theoretic foundations of Forchheimer's model of dominant-firm price leadership will be given.
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