To adjust or not to adjust after a cost-push shock? A simple duopoly model with (and without) resilience

Luca Lambertini () and Luigi Marattin

Economics of Innovation and New Technology, 2016, vol. 25, issue 2, 172-181

Abstract: We characterize the equilibrium in a homogeneous good Cournot duopoly in which firms have the choice to react to a cost-push shock by paying a lump-sum adjustment cost in order to offset the initial rise in marginal cost. Our results show that the size of the shock and the size of the adjustment cost jointly determine the nature and the number of the equilibria generated in the game. In particular, if the adjustment cost is high enough, at least one firm decides not to adjust at the pure-strategy equilibrium, and such a partial adjustment by the industry can be socially efficient as well. The main conclusions are robust to the endogenization of the adjustment cost as an increasing function of the shock size. Some implications of this partial equilibrium analysis about industry's resilience are outlined.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10438599.2015.1031344 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: To Adjust or not to Adjust after a Cost-Push Shock? A Simple Duopoly Model with (and without) Resilience (2014)
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:taf:ecinnt:v:25:y:2016:i:2:p:172-181

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/GEIN20

DOI: 10.1080/10438599.2015.1031344

Access Statistics for this article

Economics of Innovation and New Technology is currently edited by Professor Cristiano Antonelli

More articles in Economics of Innovation and New Technology from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().