Effects of Globalization under Consistent Conjectures

Authors

  • 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.

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Published

2016-11-14

How to Cite

Leal-Coronado, M. A., García-Martínez, A., & Kalashnikov, V. 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/ojs/article/view/27

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