Oligopolistic Services and Cost Function Estimation

Otto Toivanen

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Oligopolistic services and branch network decisions are studied. There are two opposing effects when a firm decides the number of branches : the captivation effect of increasing market power, and a cost effect of average costs. These ideas are formalized in a two-city Hotelling model. Firms face two cost functions : the technical cost function, given by production technology and the perceived cost function which reflects also market characteristics. There are economies of scope and diseconomies of scale at firm level and economies of scale at branch level in Finnish non-life insurance, as predicted by the model.

Keywords: cost function; insurance; multimarket; oligopoly; services (search for similar items in EconPapers)
JEL-codes: G22 L13 L80 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:429

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