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

Denis Claude () and Mabel Tidball

Journal of Economics & Management Strategy, 2025, vol. 34, issue 1, 174-192

Abstract: This article deals with the integration of industry‐level markup targets into oligopoly theory. It proposes a behavioral competition model in which firms use the average cost‐plus price to determine their supplies. Specifically, firms are assumed to increase (resp., decrease) their supplies as the market price rises over (resp., falls below) this reference price. The equilibrium market outcome lies between those corresponding to Bertrand and Cournot competition. It depends on the industry's margin target, which determines the slope of firms' supply functions. The more significant the markup target is, the lower are the firms' equilibrium supplies at any price level and the higher is the equilibrium market price. An industry‐wide commitment to targeting a markup thus reduces competition in equilibrium. The reduction in competition is more pronounced than when firms commit to linear supply functions.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jems.12577

Related works:
Working Paper: Taking firms' margin targets seriously in a model of competition in supply functions (2024)
Working Paper: Taking firms’ margin targets seriously in a model of competition in supply functions (2022)
Working Paper: Taking firms’ margin targets seriously in a model of competition in supply functions (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:34:y:2025:i:1:p:174-192

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().