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Asymmetries in Cost Structure and Incentives toward Prices Competition

Author

Listed:
  • Gabrielle Demange

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Ponssard Jean-Pierre

    (ENSAE - Ecole Nationale de la Statistique et de l'Analyse Economique - Ecole Nationale de la Statistique et de l'Analyse Economique)

Abstract

This paper provides some theoretical grounds to relate asymmetries in cost structures and incentives towards price competition. Typically low cost firms favor price competition whereas the reserve is true for high cost firms. Increased price competition will tend to diminish price-cost margins for all firms but the low cost firms may increase their total profits through an enlarged market share. This analysis depends on two relevant parameters: the way the overall market will react to increased price competition and interfirm cross elasticities. This is proved using comparative statics at the Nash equilibrium of an oligopolistic model.

Suggested Citation

  • Gabrielle Demange & Ponssard Jean-Pierre, 1985. "Asymmetries in Cost Structure and Incentives toward Prices Competition," Post-Print halshs-00670990, HAL.
    • Handle: RePEc:hal:journl:halshs-00670990
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    Cited by:

    1. Andy A. Tsay & Narendra Agrawal, 2000. "Channel Dynamics Under Price and Service Competition," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 372-391, August.
    2. Alexander, Barbara & Libecap, Gary D., 2000. "The Effect of Cost Heterogeneity in the Success and Failure of the New Deal's Agricultural and Industrial Programs," Explorations in Economic History, Elsevier, vol. 37(4), pages 370-400, October.

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