Oligopoly, Financial Structure and Resolution of Uncertainty

Journal of Economics & Management Strategy Volume 7, Issue 1, pages 67–88, Spring 1998

University of Alberta School of Business Research Paper No. 2013-664

Posted: 2 Jul 2013

See all articles by John Hughes

John Hughes

Independent

Jennifer L. Kao

Independent

Arijit Mukherji

affiliation not provided to SSRN (deceased)

Date Written: June 1, 1997

Abstract

We characterize equilibria of a multistage game in which competing duopolists may acquire and share information in advance of choosing their financial structure which, in turn, precedes production. Given sufficient uncertainty, equilibria exist in which the efficiency and, possibly, coordination gains to acquiring and sharing perfect information are sufficient to break Brander and Lewis's (1986) result wherein both firms issue debt to their mutual disadvantage. However, more interesting may be the robustness of that result when uncertainty is low or when information is imperfect. The key insight is that the consequences of issuing debt are invariant to the level of uncertainty, given that firms can recalibrate the terms of debt to achieve the Stackelberg solution.

Suggested Citation

Hughes, John and Kao, Jennifer L. and Mukherji, Arijit, Oligopoly, Financial Structure and Resolution of Uncertainty (June 1, 1997). Journal of Economics & Management Strategy Volume 7, Issue 1, pages 67–88, Spring 1998, University of Alberta School of Business Research Paper No. 2013-664, Available at SSRN: https://ssrn.com/abstract=2276057

Jennifer L. Kao

Independent

Arijit Mukherji

affiliation not provided to SSRN (deceased)

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