Risk-Averse Firms in Oligopoly

Marcus Asplund

No 69, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: Does risk aversion lead to softer or fiercer competition? To give a complete answer, I provide a framework that can accommodate a wide range of alternative assumptions regarding the nature of competition and types of uncertainty. I show how more risk aversion will influence a firm's best response strategies, and that competition is unambiguously softer only in case of marginal cost uncertainty. In contrast to risk neutrality, the best response strategies depend on the level of fixed costs. This fact is extended to cover strategic investment models, and to analyse the importance of accumulated profits. I conclude by a discussion of how it is possible to test for risk-averse behaviour in oligopoly by conditioning on the type of uncertainty.

Keywords: Oligopoly; risk aversion; fixed costs; strategic investment; second order stochastic dominance; background risk; market risk (search for similar items in EconPapers)
JEL-codes: D43 D81 L13 L21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1995-09, Revised 2000-02-23
New Economics Papers: this item is included in nep-ind and nep-mic
Note: Previous title: Oligopoly and Risk Aversion
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming in International Journal of Industrial Organization.

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Related works:
Journal Article: Risk-averse firms in oligopoly (2002)
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