Meeting the Competition: Commitment and Competitive Behavior

Tina Kao, Flavio Menezes and John Quiggin

No 151205, Risk and Sustainable Management Group Working Papers from University of Queensland, School of Economics

Abstract: In this paper, we represent 'meet the competition' guarantees as the endogenous outcome of a non-cooperative game. We model the phenomenon by assuming that firms compete in supply schedules in a two-stage process. We assume that the choice of a negatively sloped supply schedule is costly. In particular, we use Cournot behavior as a benchmark. Cournot competition entails firms choosing a fixed quantity independent of the mar- ket price. We assume that it is costly for firms to deviate from a fixed output level. Our main result shows that in equilibrium, firms behave less competitively than the Cournot benchmark when they are able to commit to a degree of responsiveness in the first stage of the competition game.

Keywords: Industrial; Organization (search for similar items in EconPapers)
Pages: 11
Date: 2012-12-28
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uqsers:151205

DOI: 10.22004/ag.econ.151205

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