Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, July 16, 2009

Bilateral oligopoly and quantity competition

Posted by D. Daniel Sokol

Alex Dickson (Economics, University of Strathclyde) and Roger Hartley (Economics, University of Manchester) describe Bilateral oligopoly and quantity competition.

ABSTRACT: Bilateral oligopoly is a strategic market game with two commodi- ties, allowing strategic behavior on both sides of the market. When the number of buyers is large, such a game approximates a game of quantity competition played by sellers. We present examples which show that this is not typically a Cournot game. Rather, we introduce an alternative game of quantity competition (the market share game), which yields the same equilibria as the many-buyer limit of bilateral oligopoly, under standard assumptions on costs and preferences. We also show that the market share and Cournot games have the same equilibria if and only if the price elasticity of the latter is one. These results lead to necessary and sufficient conditions for the Cournot game to be a good approximation to bilateral oligopoly with many buyers and to an ordering of total output when they are not satisfied.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/07/bilateral-oligopoly-and-quantity-competition.html

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