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Oligopoly and financial structure revisited

Krishnendu Dastidar ()

Economics Bulletin, 2003, vol. 12, issue 3, 1-12

Abstract: In this paper we employ a two stage Cournot duopoly model where firms can obtain outside funds only to finance production plans payouts to shareholders are not allowed. Debt, equity and capacity are chosen in the first stage and output is chosen in the second stage. In contrast to the existing literature in this area, we show firms always choose zero debt in equilibrium. The two important implications of our analysis are (a) while there are linkages between financial structure and product market decisions, these linkages have no real effect on the choice of optimal capital structure of a firm, and (b) the standard results in this area are not robust to model specifications.

JEL-codes: L1 D4 (search for similar items in EconPapers)
Date: 2003-11-14
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