Preannouncing Competitive Decisions in Oligopoly Markets

Journal of Accounting and Economics, July 2013, Volume 56, Issue 1, 73-90.

37 Pages Posted: 1 Mar 2013 Last revised: 28 Nov 2013

See all articles by Carlos Corona

Carlos Corona

Carnegie Mellon University - David A. Tepper School of Business

Lin Nan

Purdue University

Date Written: November 27, 2013

Abstract

We examine a duopolistic setting in which firms can preannounce their future competitive decisions before they actually implement them. We show that there is a unique equilibrium in which both firms preannounce and overstate their future actions when uncertainty of demand is low. We find that firms choose higher real actions than the ones they would choose in the absence of preannouncements. Moreover, the real actions of both firms are single-peaked functions of their credibility. In a Cournot market, firms face a prisoner's dilemma in which preannouncing lowers firms' profits. If firms could commit not to preannounce, they would remain silent. In a Bertrand market, firms overstate their future actions to foster collusion.

Keywords: preannouncement, competition, uncertainty

JEL Classification: M40, M41, L13

Suggested Citation

Corona, Carlos and Nan, Lin, Preannouncing Competitive Decisions in Oligopoly Markets (November 27, 2013). Journal of Accounting and Economics, July 2013, Volume 56, Issue 1, 73-90.. Available at SSRN: https://ssrn.com/abstract=2226796 or http://dx.doi.org/10.2139/ssrn.2226796

Carlos Corona

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Lin Nan (Contact Author)

Purdue University ( email )

100 S Grant St
West Lafayette, IN 47907
United States
7654960551 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
65
Abstract Views
731
rank
347,726
PlumX Metrics