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Strategic Cost Reduction and Cost Revelation

Author

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  • Jin Jim Y.

    (Queen's University of Belfast,Belfast, Northern Ireland, United Kingdom of Great Britain and Northern Ireland)

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

  • Jin Jim Y., 2001. "Strategic Cost Reduction and Cost Revelation," German Economic Review, De Gruyter, vol. 2(2), pages 99-111, May.
    • Handle: RePEc:bpj:germec:v:2:y:2001:i:2:p:99-111
    DOI: 10.1111/1468-0475.00029
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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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