Effects of Globalization under Consistent Conjectures

  • Mariel A. Leal-Coronado Tecnológico de Monterrey (ITESM), Campus Monterrey
  • Arturo García-Martínez Tecnológico de Monterrey (ITESM), Campus Monterrey
  • Vyacheslav V. Kalashnikov Central Economics and Mathematics Institute (CEMI)
Keywords: Duopoly Game, Conjectural Variations Equilibrium

Abstract

We study the effects of merging two separate markets each originally monopolized by a producer into a globalized duopoly market. We consider a linear inverse demand with cap price and quadratic cost functions. After globalization, we find the consistent conjectural variations equilibrium (CCVE) of the duopoly game. Unlike in the Cournot equilibrium, a complete symmetry (identical cost functions parameters of both firms) does not imply the strongest coincident profit degradation. For the situation where both agents are low-marginal cost firms, we find that the company with a technical advantage over her rival has a better ratio of the current and previous profits.Moreover, as the rival becomes ever weaker, that is, as the slope of the rival’s marginal cost function increases, the profit ratio improves.

Published
2016-11-14
How to Cite
Leal-Coronado, M., García-Martínez, A., & Kalashnikov, V. (2016). Effects of Globalization under Consistent Conjectures. International Journal of Combinatorial Optimization Problems and Informatics, 7(3), 62-74. Retrieved from https://ijcopi.org/index.php/ojs/article/view/27
Section
Articles