Risk-averse firms in oligopoly
2002 (English)In: International Journal of Industrial Organization, ISSN 0167-7187, Vol. 20, no 7, 995-1012 p.Article in journal (Refereed) Published
Does risk aversion lead to softer or fiercer competition? This paper provides a framework that accommodates a wide range of alternative assumptions regarding the nature of competition and types of uncertainty. It shows how risk aversion influences firms' best-response strategies. Only in the case of marginal cost uncertainty does higher risk aversion make competition unambiguously softer. The risk-averse best response strategies depend on the level of fixed costs. This fact is used to analyse strategic investments in capacity and the importance of accumulated profits. The paper concludes with a discussion of ways of empirically testing for risk-averse behaviour in oligopoly.
Place, publisher, year, edition, pages
2002. Vol. 20, no 7, 995-1012 p.
oligopoly, risk aversion, fixed costs, strategic investment, second order stochastic dominance, background risk, industry equilibrium, comparative statics, background risk, uncertainty, information, competition, entry
IdentifiersURN: urn:nbn:se:kth:diva-21728ISI: 000176921800005OAI: oai:DiVA.org:kth-21728DiVA: diva2:340426
QC 201005252010-08-102010-08-10Bibliographically approved