Multi-stage oligopoly models with nested logit demand structures: A simplifying approach

Xose-Luis Varela-Irimia

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: Solving multi-stage oligopoly models by backward induction can easily become a com- plex task when rms are multi-product and demands are derived from a nested logit frame- work. This paper shows that under the assumption that within-segment rm shares are equal across segments, the analytical expression for equilibrium pro ts can be substantially simpli ed. The size of the error arising when this condition does not hold perfectly is also computed. Through numerical examples, it is shown that the error is rather small in general. Therefore, using this assumption allows to gain analytical tractability in a class of models that has been used to approach relevant policy questions, such as for example rm entry in an industry or the relation between competition and location. The simplifying approach proposed in this paper is aimed at helping improving these type of models for reaching more accurate recommendations.

Keywords: Oligopolis; 334 - Formes d'organització i cooperació en l'economia (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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