Department of Economics. University of Melbourne. Parkville Victoria 3052 Australia
ABSTRACT
Consider an oligopolistic industry where demand uncertainty resolves after at least one firm has engaged in production. Those firms who produce first behave as simultaneous leaders (co-leaders), whilst those who produce after demand becomes observable will be followers. Each follower simply plays an individual best response. On the other hand, each co-leader takes only other co-leaders' production quantities as given. On the other hand, each co-leader takes only other co-leaders' production quantities as given. Using simple linear demand, we establish that the number of co-leaders monotonically decreases in the magnitude of demand uncertainty relative to the expected level of demand. We also find that, with demand uncertainty and the possibility of Stackelberg behaviour, whether the excess entry theorem applies depends upon the number of existing followers.
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