To Adjust or not to Adjust after a Cost-Push Shock? A Simple Duopoly Model with (and without) Resilience

Lambertini, Luca ; Marattin, Luigi (2014) To Adjust or not to Adjust after a Cost-Push Shock? A Simple Duopoly Model with (and without) Resilience. Bologna: Dipartimento di Scienze economiche DSE, p. 16. DOI 10.6092/unibo/amsacta/4089. In: Quaderni - Working Paper DSE (970). ISSN 2282-6483.
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Abstract

We characterize the equilibrium in a homogeneous good Cournot duopoly in which firms have the choice to react to a cost-push shock by paying a lump-sum adjustment cost in order to offset the initial rise in marginal cost. Our results show that the size of the shock and the size of the adjustment cost jointly determine the nature and the number of the equilibria generated in the game. In particular, if the adjustment cost is high enough, at least one firm decides not to adjust at the pure strategy equilibrium, and such a partial adjustment by the industry can be socially efficient as well. Some implications of this partial equilibrium analysis about an industry' resilience are outlined.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Lambertini, Luca
Marattin, Luigi
Keywords
Cournot duopoly, cost-push shock, resilience
Subjects
ISSN
2282-6483
DOI
Deposit date
20 Oct 2014 12:57
Last modified
16 Mar 2015 14:34
URI

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