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To Adjust or not to Adjust after a Cost-Push Shock? A Simple Duopoly Model with (and without) Resilience

Luca Lambertini () and Luigi Marattin ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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. Some implications of this partial equilibrium analysis about an industry' resilience are outlined.

JEL-codes: D43 E30 L13 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-com, nep-mac and nep-mic
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Journal Article: To adjust or not to adjust after a cost-push shock? A simple duopoly model with (and without) resilience (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp970

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