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Choice of strategic variables under relative profit maximization in asymmetric oligopoly: non-equivalence of price strategy and quantity strategy

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  • Atsuhiro Satoh
  • Yasuhito Tanaka

Abstract

We consider choice of strategic variables under relative profit maximization in an asymmetric oligopoly with differentiated goods such that there are three firms, Firm 2 and 3 have the same cost function, but Firm 1 has a different cost function. We show that there are two pure strategy sub-game perfect equilibria. 1) All firms choose the outputs as their strategic variables, 2)Firm 2 and 3 choose the outputs as their strategic variables, and Firm 1 chooses the price as its strategic variable.

Suggested Citation

  • Atsuhiro Satoh & Yasuhito Tanaka, 2014. "Choice of strategic variables under relative profit maximization in asymmetric oligopoly: non-equivalence of price strategy and quantity strategy," Economics and Business Letters, Oviedo University Press, vol. 3(2), pages 115-126.
    • Handle: RePEc:ove:journl:aid:10283
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    File URL: https://reunido.uniovi.es/index.php/EBL/article/view/10283
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    1. Robert Gibbons & Kevin J. Murphy, 1990. "Relative Performance Evaluation for Chief Executive Officers," ILR Review, Cornell University, ILR School, vol. 43(3), pages 30, April.
    2. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    3. Matsumura, Toshihiro & Matsushima, Noriaki & Cato, Susumu, 2013. "Competitiveness and R&D competition revisited," Economic Modelling, Elsevier, vol. 31(C), pages 541-547.
    4. Yasuhito Tanaka, 2013. "Irrelevance of the choice of strategic variables in duopoly under relative profit maximization," Economics and Business Letters, Oviedo University Press, vol. 2(2), pages 75-83.
    5. Yuanzhu Lu, 2011. "The Relative-Profit-Maximization Objective Of Private Firms And Endogenous Timing In A Mixed Oligopoly," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(02), pages 203-213.
    6. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
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    Cited by:

    1. Li, Hui & Zhou, Wei & Elsadany, A. A & Chu, Tong, 2021. "Stability, multi-stability and instability in Cournot duopoly game with knowledge spillover effects and relative profit maximization," Chaos, Solitons & Fractals, Elsevier, vol. 146(C).

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