Advertisement

Small Business Economics

, Volume 8, Issue 5, pp 365–378 | Cite as

Confronting the implications of the Cournot model with industry and firm data

  • Karl Aiginger
Article

Abstract

This paper derives testable implications of the standard Cournot models and confronts these implications with real world data. Though we cannot expect that real world may be characterized by a simple static homogeneous model, it is surprising that little empirical work exists on testing the implications of this most popular model of oligopoly and non cooperative game theory.

We make use of three data sets for manufacturing industry, two of them on the firm level, one about firms grouped according to their size. The relation of the results to the predictions of the Cournot model is discussed, as well as its relation to alternative oligopoly models. We specifically focus at the question whether the implications of the oligopoly models on the performance of large versus small firms are in line with the data.

Keywords

Real World Game Theory Small Firm Empirical Work Industrial Organization 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. AigingerK., 1993a, ‘Collusion, Concentration and Profits’, Empirica 29(2), 159–173.Google Scholar
  2. AigingerK., 1993b, ‘Small Firms and the Merger Mania: A Reply’, Small Business Economics 5(1), 27–34.Google Scholar
  3. Aiginger, K., 1994a, ‘Explaining Differences in Profitability on the Industry Level’, WIFO Working Paper.Google Scholar
  4. Aiginger, K., 1994b, ‘The Usefulness of Oligopoly Models for Explaining Firm Differences in Pofitability’, Paper presented to the European Economic Association, Maastricht, 1994.Google Scholar
  5. Aiginger, K., 1994c, ‘The Use of Game Theoretical Models for Empirical Research’, Paper presented at the 7th Conference on Utility and Risk Theory, Oslo, 1994.Google Scholar
  6. AigingerK., P.Brandner and M.Wüger, 1995, ‘Measuring Market Power for Some Industrial Sectors in Austria’, Applied Economics 27, 369–376.Google Scholar
  7. AigingerK. and J.Finsinger (eds.), 1994, Applied Industrial Organization, Dordrecht: Kluwer Academic Publishers.Google Scholar
  8. AigingerK. and G.Tichy, 1991, ‘Small Firms and the Merger Mania’, Small Business Economics 3(2), 83–101.Google Scholar
  9. BainJ. S., 1951, ‘Relation of Profit Rate on Industry Concentration: American Manufacturing, 1936–1940’, Quarterly Journal of Economics 65, 293–324.Google Scholar
  10. BainJ. S., 1956, Barriers to New Competition, Cambridge: Harvard University Press.Google Scholar
  11. BothwellJ. and T. E.Keeler, 1976, ‘Profits, Market Structure and Portfolio Risk’, in R. T.Masson and David P.Qualls (eds.), Essays in Industrial Organization in Honor of J. S. Bain, Cambridge MA: Ballinger, pp. 71–88.Google Scholar
  12. BresnahanT. F., 1989, ‘Empirical Studies of Industries with Market Power’, in R.Schmalensee and R. D.Willig (eds.), Handbook of Industrial Organization, II, Amsterdam: Elsevier Publishers.Google Scholar
  13. CowlingK. and M.Waterson, 1976, ‘Price Cost Margins and Market Structure’, Economica 38, 378–394.Google Scholar
  14. DemsetzH., 1973, ‘Industry Structure, Market Rivalry, and Public Policy’, Journal of Law and Economics 16, 1–10.Google Scholar
  15. DemsetzH., 1974, ‘Two Systems of Belief About Monopoly’, in H. J.Goldschmid, H. M.Mann and J. F.Weston (eds.), Industrial Concentration: The New Learning, Boston: Little, Brown.Google Scholar
  16. DixitA. K., 1980, ‘The Role of Investment in Entry Deterrence’, Economic Journal 90, 106.Google Scholar
  17. FisherF., 1987, ‘On the Misuse of Profit Sales Ratios to Infer Monopoly Power’, Rand Journal 18, 384–396.Google Scholar
  18. FisherF. and J. J.Gowan, 1983, ‘On the Misuse of Accounting Rates of Return to Infer Monopoly Profits’, American Economic Review 73(1), 82–97.Google Scholar
  19. GaleB. T., 1972, ‘Market Share and the Rate of Return’, Review of Economics and Statistics 54, 421–423.Google Scholar
  20. Gale, B. T. and B. S. Branch, 1982, ‘Concentration Versus Market Share’, Antitrust Bulletin 00, 83–106.Google Scholar
  21. GeroskiP. A., 1986, ‘Specification and Testing the Profits —Concentration Relationship: Some Experiment for the U.K.’, Economica 48, 279–288.Google Scholar
  22. Geroski, P. A., 1987, ‘Competition and Innovation’, Report prepared for the EC Commission, Brussels.Google Scholar
  23. GeroskiP. A., 1988, ‘In Pursuit of Monopoly Power’, Journal of Applied Econometrics 3, 107–123.Google Scholar
  24. HäcknerJ., 1994, ‘Collusive Pricing in Markets for Vertically Differentiated Products’, International Journal of Industrial Organization 12(2), 141–296.CrossRefGoogle Scholar
  25. MuellerD. C., 1986, Profits in the Long Run, Cambridge: Cambridge University Press.Google Scholar
  26. MuellerD. C., 1990, The Dynamics of Company Profits, Cambridge: Cambridge University Press.Google Scholar
  27. NeumannM., I.Böbel and A.Haid, 1979, ‘Profitability, Risk and Market Structure in West German Industries’, Journal of Industrial Economics 27(3), 227–242.Google Scholar
  28. NeumannM. and A.Haid, 1985, ‘Concentration and Economic Performance’, in J.Schwalbach (ed.), Industry Structure and Performance, Berlin: WZB Edition Sigma.Google Scholar
  29. SchmalenseeR., 1989, ‘Interindustry Studies of Structure and Performance’, in R.Schmalensee and R. D.Willig (eds.), Handbook of Industrial Organization, II, Amsterdam: Elsevier Publishers.Google Scholar
  30. ShapiroC., 1989, ‘Theory of Oligopoly Behavior’, in R.Schmalensee and R. D.Willig (eds.), Handbook of Industrial Organization, Amsterdam: Elsevier Publishers.Google Scholar
  31. SuttonJ., 1990, ‘Explaining Everything, Explaining Nothing’, European Economic Review 34, 505–512.CrossRefGoogle Scholar
  32. SuttonJ., 1992, Sunk Costs and Market Structure, Cambridge: MIT Press.Google Scholar
  33. TiroleJ., 1989, The Theory of Industrial Organization, Cambridge: MIT Press.Google Scholar
  34. WatersonM., 1980, ‘Price Cost Margin and Successive Market Power’, Quarterly Journal of Economics 94, 135–150.Google Scholar
  35. WatersonM., 1990, ‘Product Differentiation and Profitability: An Asymmetric Model’, Journal of Industrial Economics 39, 113–130.Google Scholar

Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Karl Aiginger
    • 1
    • 2
  1. 1.Austrian Institute of Economic ResearchViennaAustria
  2. 2.WIFOUniversity of LinzViennaAustria

Personalised recommendations