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Strategic Cost Reduction and Cost Revelation

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  • Jim Y. Jin

Abstract

Strategic cost reduction requires cost transparency. When unilateral cost revelation is feasible, strategic cost reduction indeed arises as equilibrium. If it is not feasible, however, credible revelation has to be organized, possibly by a trade association. Then, firms face a prisoners’ dilemma: in Cournot duopoly, cost revelation arises as an equilibrium, but hurts firms; in Bertrand duopoly, cost concealing is the equilibrium, while firms would be better off with cost revelation. Since cost revelation is socially desirable (undesirable) in Cournot (Bertrand) competition, it should be encouraged (discouraged).

Suggested Citation

  • Jim Y. Jin, 2001. "Strategic Cost Reduction and Cost Revelation," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 99-111, May.
    • Handle: RePEc:bla:germec:v:2:y:2001:i:2:p:99-111
    DOI: 10.1111/1468-0475.00029
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    References listed on IDEAS

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    Cited by:

    1. Li, Yi, 2017. "Voluntary disclosure and investment in environmental technology," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 331-341.

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