A Model of Promotional Competition in Oligopoly
(1974) , 33 pages
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- Abstract
- (en) In concentrated markets, price competition is often largely replaced by promotional competition. The Cournot behavioral assumption seems quite plausible in such cases. This paper presents and analyzes a symmetric Cournot model of promotional competition with fixed price and a particular demand structure. Entry generally reduces profits in this model, but it may not eliminate them. Local stability is analyzed, and it is noted that stability does not imply that profits are eliminated by entry. Increasing marginal promotion cost is always stabilizing, but increasing marginal production cost may be destabilizing. Boundedness and global stability are demonstrated under special assumptions.
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Citations
Schmalensee, R. (1974). A Model of Promotional Competition in Oligopoly (Working Papers Institut des sciences économiques 7411). https://hdl.handle.net/2078.5/275721