Abstract
This paper analyzes a duopoly model with stochastic demand in which firms first choose their strategy variable and compete afterwards. Contrary to the existing literature, we show that firms do not always choose a quantity which is the variable that induces a smaller degree of competition. The reason is that demand uncertainty and the degree of substitutability have countervailing effects on variable choice. Higher uncertainty favors prices, while closer substitutability favors quantities. Moreover, for intermediate values firms choose different strategy variables in equilibrium.
Item Type: | Paper |
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Keywords: | Competition; Strategy Variables; Demand Uncertainty |
Faculties: | Economics Economics > Munich Discussion Papers in Economics Economics > Munich Discussion Papers in Economics > Industrial Organization Economics > Chairs > Chair of Dynamic Economic Theory (closed) |
Subjects: | 300 Social sciences > 300 Social sciences, sociology and anthropology 300 Social sciences > 330 Economics |
JEL Classification: | D43, L13 |
URN: | urn:nbn:de:bvb:19-epub-1916-9 |
Language: | English |
Item ID: | 1916 |
Date Deposited: | 09. May 2007 |
Last Modified: | 05. Nov 2020, 10:43 |