Taking firms’ margin targets seriously in a model of competition in supply functions

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Date

31 janvier 2022

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Archive Ouverte d'INRAE

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Institut national de recherche pour l’agriculture, l’alimentation et l’environnement

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INRAE

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info:eu-repo/semantics/OpenAccess

Mots-clés En

supply function markup pricing price fixing oligopoly

Sujets proches En

Competition (Economics) Economic competition Competitiveness (Economics)

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Denis Claude et al., « Taking firms’ margin targets seriously in a model of competition in supply functions », Archive Ouverte d'INRAE, ID : 10670/1.tl90ci

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We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.

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