Niche vs. Central Firms: Technology Choice and Cost-Price Dynamics in a Differentiated Oligopoly

Quaderni - Working Paper DSE N° 1126

26 Pages Posted: 22 Dec 2018

See all articles by Emanuele Bacchiega

Emanuele Bacchiega

University of Bologna - Department of Economics

Paolo G. Garella

University of Milan - Dipartimento di Scienze Economiche, Aziendali e Statistiche

Date Written: October 12, 2018

Abstract

This paper is about technology choices in a differentiated oligopoly. The main questions are: whether the position in the product space affects the choice of technology, how changes in fixed costs affect price outcomes, the strategic responses to policy interventions. The industry is an oligopoly where a central firm is competing with two peripheral (or marginal) ones. The former is shown to be more ready than the latter to adopt a technology with low marginal costs and high fixed costs (Increasing Returns to Scale) rather than one with the opposite pattern (Constant Returns to Scale). The fixed cost in the IRS affects the technology configuration and hence output prices. For instance, a lower fixed cost may trigger lower prices and it is neutral only for given technologies. A price-cap may forestall a change in technologies; nondiscriminatory ad-valorem tax and taxes on variable input, or discriminatory unit taxes can also affect the technology pattern and deliver important effects on prices.

Keywords: Oligopoly, technology, price dynamics, policy intervention

JEL Classification: D43, L11, L13

Suggested Citation

Bacchiega, Emanuele and Garella, Paolo G., Niche vs. Central Firms: Technology Choice and Cost-Price Dynamics in a Differentiated Oligopoly (October 12, 2018). Quaderni - Working Paper DSE N° 1126. Available at SSRN: https://ssrn.com/abstract=3295757 or http://dx.doi.org/10.2139/ssrn.3295757

Emanuele Bacchiega (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
40126 Bologna, 40125
Italy
+390512098486 (Phone)
+390512098493 (Fax)

Paolo G. Garella

University of Milan - Dipartimento di Scienze Economiche, Aziendali e Statistiche ( email )

via Conservatorio 7
Milano, 20122
Italy

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