Why Are Firms Sometimes Unwilling to Reduce Costs?

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Why Are Firms Sometimes Unwilling to Reduce Costs?

Please use this identifier to cite or link to this item: http://hdl.handle.net/10355/2601

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Title: Why Are Firms Sometimes Unwilling to Reduce Costs?
Author: Zhao, Jingang; Wang, X. H. (X. Henry), 1962-
Keywords: Effect of cost reduction
multiproduct oligopoly
price competition
quantity competition
Date: 2007-01
Publisher: Department of Economics
Citation: Department of Economics, 2007
Series/Report no.: Working papers (Department of Economics);WP 07-03
Abstract: This paper establishes three new results for multiproduct oligopolies: 1) it presents the first explicit expression of Nash equilibria for asymmetric multiproduct oligopolies; 2) it shows that reducing a multiproduct firm's cost in Bertrand oligopolies will reduce its profits if the cost-reducing unit is sufficiently small; and 3) it demonstrates that a multiproduct firm has no incentive to eliminate a product whose sales are zero. Because a single-product firm whose sales are zero is indifferent between exiting and staying, and its cost reductions always increase its profits, our results are unique to the multiproduct firm, and they suggest that extending oligopoly studies from a single product to multi-products could be as significant as the extension of calculus from a single variable to multi-variables.
URI: http://hdl.handle.net/10355/2601

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  • Economics publications (MU) [120]
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