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The Choice of Prices vs. Quantities under Uncertainty

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Author Info
Reisinger, Markus
Reßner, Ludwig
Abstract

This paper analyzes a duopoly model with stochastic demand in which firms first choose their strategy variable and compete afterwards. Contrary to the existing literature, we show that firms do not always choose a quantity which is the variable that induces a smaller degree of competition. The reason is that demand uncertainty and the degree of substitutability have countervailing effects on variable choice. Higher uncertainty favors prices, while closer substitutability favors quantities. Moreover, for intermediate values firms choose different strategy variables in equilibrium.

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Publisher Info
Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1916.

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Date of creation: May 2007
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Handle: RePEc:lmu:muenec:1916

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Related research
Keywords: Competition; Strategy Variables; Demand Uncertainty;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Tasnadi, Attila, 2006. "Price vs. quantity in oligopoly games," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 541-554, May. [Downloadable!] (restricted)
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