DP1194 Do Other Firms Matter in Oligopolies?

Author(s): Jonathan Haskel, Pasquale Scaramozzino
Publication Date: June 1995
Keyword(s): Conjectural Variations, Oligopolies, Panel Data
JEL(s): L13, L65, L68, L73
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1194

This paper examines how firms interact with their rivals. The main novelty of our approach is that we let conjectural variations depend on the actual ability of other firms to react, which we measure by both the physical capacity and financial status of firms. Our main findings are threefold. First, in general, spare physical capacity leads rival firms to conjecture more aggressive behaviour. Second, financial variables have a complex effect on conjectures. We interpret this as due to signalling effects being more important in some industries, and financial distress in others. Third, leader-follower interactions appear to be relevant in all of the industries considered.