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Bilateral oligopoly and quantity competition

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  • Dickson, Alex
  • Hartley, Roger

Abstract

Bilateral oligopoly is a strategic market game with two commodities, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game) and, appealing to results in the literature on contests, show that this yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.

Suggested Citation

  • Dickson, Alex & Hartley, Roger, 2009. "Bilateral oligopoly and quantity competition," SIRE Discussion Papers 2009-52, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:649
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    Cited by:

    1. Roy H Grieve, 2013. "An issue with own-rates: Keynes borrows from Sraffa , Sraffa criticises Keynes, and present-day commentators get hold of the wrong end of the stick," Working Papers 1319, University of Strathclyde Business School, Department of Economics.
    2. Yamaura Koichi & Xia Tian, 2016. "Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 14(1), pages 33-42, May.
    3. Richard Cornes & Roger Hartley & Yuji Tamura, 2019. "Two‐Aggregate Games: Demonstration Using a Production–Appropriation Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 353-378, January.
    4. Ludovic A. Julien, 2015. "A note on market power in bilateral oligopoly," Economics Bulletin, AccessEcon, vol. 35(1), pages 400-406.
    5. Ludovic A. Julien & Anicet Kabre & Louis de Mesnard, 2022. "Pollution in strategic multilateral exchange: taxing emissions or trading on permit markets?," Post-Print hal-03791673, HAL.
    6. Alex Dickson, 2013. "On Cobb-Douglas Preferences in Bilateral Oligopoly," Recherches économiques de Louvain, De Boeck Université, vol. 79(4), pages 89-110.
    7. Makoto Yano & Takashi Komatsubara, 2018. "Price competition or price leadership," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1023-1057, December.
    8. Cont, Walter & Porto, Guido, 2014. "Measuring the impact of a change in the price of Cashew received by exporters on farmgate prices and poverty in Guinea-Bissau," Policy Research Working Paper Series 7036, The World Bank.

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    More about this item

    Keywords

    Quantity competition; Cournot; strategic foundation; commitment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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