Summary
We have shown that introduction of random conjectural variations and risk aversion into an oligopoly model leads to results in line with those derived earlier for competitive and monopolistic firms. In particular, a risk-averse firm has smaller output and higher expected price-cost margin than a risk-neutral firm. For a specific form of conjectural variations we have shown that under risk aversion the firm-level expected price-cost margins depend on the market structure, measured in terms of the Herfindahl index of the rest of the firms in the industry, as well as on the expected degree of correlation between the competitors' reactions.
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Ilmakunnas, P. Conjectural variations, risk aversion and price-cost margins. Zeitschr. f. Nationalökonomie 45, 73–80 (1985). https://doi.org/10.1007/BF01283156
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DOI: https://doi.org/10.1007/BF01283156