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Oligopolistic Services and Cost Function Estimation

Author

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  • Toivanen, Otto

Abstract

Oligopolistic services and branch network decisions are studied. There are two opposing effects when a firm decides the number of branches : the captivation effect of increasing market power, and a cost effect of average costs. These ideas are formalized in a two-city Hotelling model. Firms face two cost functions : the technical cost function, given by production technology and the perceived cost function which reflects also market characteristics. There are economies of scope and diseconomies of scale at firm level and economies of scale at branch level in Finnish non-life insurance, as predicted by the model.

Suggested Citation

  • Toivanen, Otto, 1994. "Oligopolistic Services and Cost Function Estimation," The Warwick Economics Research Paper Series (TWERPS) 429, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:429
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1989-1994/twerp429.pdf
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    More about this item

    Keywords

    cost function ; insurance ; multimarket ; oligopoly ; services;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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