IDEAS home Printed from https://ideas.repec.org/p/oxf/wpaper/188.html
   My bibliography  Save this paper

Demand shifts and imperfect competition

Author

Listed:
  • Simon GB Cowan
  • Simon Cowan

Abstract

The effects of demand shifts on output, price and profits in imperfectly competitive industries with no entry or exit are derived. Four types of demand shift are modelled: additive and multiplicative shifts of the demand and inverse demand functions. Necessary and sufficient conditions for output, price and profits to increase with an outward demand shift are derived for each case. Either output or the price, but not both, may fall with a positive demand shift. Profits may also fall for a Cournot oligopoly. Log-concavity of the direct demand function is sufficient for the standard results to go through.

Suggested Citation

  • Simon GB Cowan & Simon Cowan, 2004. "Demand shifts and imperfect competition," Economics Series Working Papers 188, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:188
    as

    Download full text from publisher

    File URL: https://ora.ox.ac.uk/objects/uuid:f84c8ace-e408-4ae2-88bf-96369bf4148d
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    2. Rabah Amir & Val E. Lambson, 2000. "On the Effects of Entry in Cournot Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(2), pages 235-254.
    3. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
    4. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
    5. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    6. Fluet, Claude & Phaneuf, Louis, 1997. "Price adjustment costs and the effect of endogenous technique on price stickiness," European Economic Review, Elsevier, vol. 41(2), pages 245-257, February.
    7. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
    8. Cowan, Simon, 2004. "Optimal risk allocation for regulated monopolies and consumers," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 285-303, January.
    9. Seade, J., 1985. "Profitable Cost Increases and the Shifting of Taxation: Equilibrium Responses of Markets in Oligopoly," Economic Research Papers 269225, University of Warwick - Department of Economics.
    10. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
    11. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    12. Friedman, David, 1987. "Cold Houses in Warm Climates and Vice Versa: A Paradox of Rational Heating," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1089-1097, October.
    13. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    14. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn.
    15. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
    16. Schlee, Edward E., 1993. "A curvature condition ensuring uniqueness of Cournot equilibrium, with applications to comparative statics," Economics Letters, Elsevier, vol. 41(1), pages 29-33.
    17. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
    18. Bulow, Jeremy & Geanakoplos, John & Klemperer, Paul, 1985. "Holding Idle Capacity to Deter Entry [The Role of Investment in Entry Deterrence]," Economic Journal, Royal Economic Society, vol. 95(377), pages 178-182, March.
    19. F. H. Hahn, 1962. "The Stability of the Cournot Oligopoly Solution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 329-331.
    20. Tim Baldenius & Stefan Reichelstein, 2000. "Comparative statics of monopoly pricing," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(2), pages 465-469.
    21. Hamilton, Stephen F., 1999. "Demand shifts and market structure in free-entry oligopoly equilibria," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 259-275, February.
    22. Schlee, Edward E., 1993. "A curvature condition ensuring uniqueness of Cournot equilibrium, with applications to comparative statics (economics letters 41, no. 1, 1993, pp. 29-33)," Economics Letters, Elsevier, vol. 43(2), pages 239-239.
    23. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    24. Quirmbach, Herman C, 1988. "Comparative Statics for Oligopoly: Demand Shift Effects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 451-459, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Essaji Azim, 2010. "Trade Liberalization, Standards and Protection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-21, July.
    2. Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2022. "Non‐linear revenue evaluation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(5), pages 487-505, November.
    3. David, Maia & Nimubona, Alain-Désiré & Sinclair-Desgagné, Bernard, 2011. "Emission taxes and the market for abatement goods and services," Resource and Energy Economics, Elsevier, vol. 33(1), pages 179-191, January.
    4. Pouyet, Jérôme & Thomas, Trégouët, 2021. "The Competitive Effects of Vertical Integration in Platform Markets," CEPR Discussion Papers 16545, C.E.P.R. Discussion Papers.
    5. Ebru K. Bish & Juqi Liu & Douglas R. Bish, 2010. "A note on “resource flexibility with responsive pricing”," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(2), pages 119-126, March.
    6. Yang, Yang & Liu, Jie, 2023. "Price timing and financing strategies for a capital-constrained supply chain with price-dependent stochastic demand," International Journal of Production Economics, Elsevier, vol. 261(C).
    7. Pouyet, Jérôme & Trégouët, Thomas, 2016. "Vertical Mergers in Platform Markets," CEPR Discussion Papers 11703, C.E.P.R. Discussion Papers.
    8. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, vol. 54(11), pages 1876-1890, November.
    9. Jesse M Cunha & Giacomo De Giorgi & Seema Jayachandran, 2019. "The Price Effects of Cash Versus In-Kind Transfers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 240-281.
    10. Alexander Haupt, 2023. "Environmental Policy and Renewable Energy in an Imperfectly Competitive Market," CESifo Working Paper Series 10524, CESifo.
    11. Özelkan, Ertunga C. & ÇakanyIldIrIm, Metin, 2009. "Reverse bullwhip effect in pricing," European Journal of Operational Research, Elsevier, vol. 192(1), pages 302-312, January.
    12. Yuyue Song & Saibal Ray & Shanling Li, 2008. "Structural Properties of Buyback Contracts for Price-Setting Newsvendors," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 1-18, November.
    13. Menezes, Flavio M. & Quiggin, John, 2022. "Market power amplifies the price effects of demand shocks," Economics Letters, Elsevier, vol. 221(C).
    14. Han, Sungill & Chung, Chanjin & Suh, Daeseok, 2011. "Generic Advertising in Concentrated and Differentiated Agricultural Markets," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103739, Agricultural and Applied Economics Association.
    15. Yuyue Song & Saibal Ray & Tamer Boyaci, 2009. "Technical Note---Optimal Dynamic Joint Inventory-Pricing Control for Multiplicative Demand with Fixed Order Costs and Lost Sales," Operations Research, INFORMS, vol. 57(1), pages 245-250, February.
    16. Ziaul Haq Adnan & Ertunga Özelkan, 2019. "Bullwhip effect in pricing under different supply chain game structures," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(5), pages 393-404, October.
    17. Leung, Justin H. & Seo, Hee Kwon, 2023. "How do government transfer payments affect retail prices and welfare? Evidence from SNAP," Journal of Public Economics, Elsevier, vol. 217(C).
    18. Bish, Ebru K. & Suwandechochai, Rawee, 2010. "Optimal capacity for substitutable products under operational postponement," European Journal of Operational Research, Elsevier, vol. 207(2), pages 775-783, December.
    19. Leung,Justin H. & Hee Kwon (Samuel) Seo, 2022. "How Do Government Transfer Payments Affect Retail Prices and Welfare ? Evidence from SNAP," Policy Research Working Paper Series 10075, The World Bank.
    20. Özelkan, Ertunga C. & Lim, Churlzu & Adnan, Ziaul Haq, 2018. "Conditions of reverse bullwhip effect in pricing under joint decision of replenishment and pricing," International Journal of Production Economics, Elsevier, vol. 200(C), pages 207-223.
    21. Xiabing Zheng & Xiaolong Guo, 2016. "E-retailing of restaurant services: pricing strategies in a competing online environment," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(11), pages 1408-1418, November.
    22. Wang, Yao-Yu & Wang, Jian-Cai & Shou, Biying, 2013. "Pricing and effort investment for a newsvendor-type product," European Journal of Operational Research, Elsevier, vol. 229(2), pages 422-432.
    23. Ertunga Özelkan & Churlzu Lim, 2008. "Conditions of reverse bullwhip effect in pricing for price-sensitive demand functions," Annals of Operations Research, Springer, vol. 164(1), pages 211-227, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    2. Luciano Fanti & Domenico Buccella, 2021. "Tax evasion and competition in a differentiated duopoly," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 385-411, September.
    3. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    4. Pedro Mendi & Róbert F. Veszteg, 2009. "Sustainability of collusion: evidence from the late 19th century basque iron and steel industry," Investigaciones Economicas, Fundación SEPI, vol. 33(3), pages 385-405, September.
    5. Chaim Fershtman & Ariel Pakes, 2000. "A Dynamic Oligopoly with Collusion and Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 207-236, Summer.
    6. Boone, Jan & Müller, Wieland, 2012. "The distribution of harm in price-fixing cases," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 265-276.
    7. Kyle Bagwell & Robert Staiger, 1997. "Collusion Over the Business Cycle," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 82-106, Spring.
    8. Namhoon Kwon, 2007. "Entry Invitations in a Market with Network Effects," International Economic Journal, Taylor & Francis Journals, vol. 21(1), pages 49-59.
    9. Ari Hyytinen & Frode Steen & Otto Toivanen, 2019. "An Anatomy of Cartel Contracts," The Economic Journal, Royal Economic Society, vol. 129(621), pages 2155-2191.
    10. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    11. Rabah Amir & Isabelle Maret & Michael Troege, 2004. "On Taxation Pass-Through for a Monopoly Firm," Annals of Economics and Statistics, GENES, issue 75-76, pages 155-172.
    12. Margaret C. Levenstein & Valerie Y. Suslow, 2002. "What Determines Cartel Success?," UMASS Amherst Economics Working Papers 2002-01, University of Massachusetts Amherst, Department of Economics.
    13. Leola B. Ross, "undated". "When Will an Airline Stand Its Ground? An Analysis of Fare Wars," Working Papers 9703, East Carolina University, Department of Economics.
    14. Robert Gagné & Simon van Norden & Bruno Versaevel, 2003. "Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline," CIRANO Working Papers 2003s-57, CIRANO.
    15. Gerlach, Heiko, 2009. "Stochastic market sharing, partial communication and collusion," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 655-666, November.
    16. Sylvain Chassang & Juan Ortner, 2019. "Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2269-2300.
    17. Hamilton, Stephen F., 1999. "Tax incidence under oligopoly: a comparison of policy approaches," Journal of Public Economics, Elsevier, vol. 71(2), pages 233-245, February.
    18. Emilie Dargaud & Armel Jacques, 2023. "Intermittent Collusive Agreements: Antitrust Policy and Business Cycles," Post-Print hal-04206725, HAL.
    19. Hoernig, Steffen H., 2003. "Existence of equilibrium and comparative statics in differentiated goods Cournot oligopolies," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 989-1019, September.
    20. Luis Orea & Jevgenijs Steinbuks, 2018. "Estimating Market Power In Homogenous Product Markets Using A Composed Error Model: Application To The California Electricity Market," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1296-1321, April.

    More about this item

    Keywords

    Comparative Statics; Monopoly; Oligopoly; Log-concavity.;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anne Pouliquen (email available below). General contact details of provider: https://edirc.repec.org/data/sfeixuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.