Journal article

Aggregative games and oligopoly theory: short‐run and long‐run analysis

Simon Anderson, Nisvan Erkal, Daniel PICCININ

The RAND Journal of Economics | Wiley | Published : 2020

Abstract

We compile an IO toolkit for aggregative games and use inclusive best reply functions to deliver oligopoly comparative statics and ranking of firms' actions and profits. Aggregative games apply to additively separable direct and indirect preferences, as well as generalized quadratic forms. The aggregative game structure delivers immediate consumer welfare results if demand functions have the IIA property. We close the model with a monopolistically competitive fringe to show strong neutrality properties for long-run equilibria. These properties underscore a unifying principle in the literature on merger analysis, privatization, Stackelberg leadership, and cost shocks.

University of Melbourne Researchers

Grants

Awarded by Australian Research Council


Funding Acknowledgements

An earlier version of this article was circulated as CEPR Discussion Paper No. 9511, with the title "Aggregative Oligopoly Games with Entry." We thank David Myatt (the Editor) and three anonymous referees for their constructive comments. We are also thankful to Suren Basov, David Byrne, Chris Edmond, Maxim Engers, Daniel Halbheer, Joe Harrington, Simon Loertscher, Phil McCalman, ClaudioMezzetti, Volker Nocke, Martin Peitz, Frank Stahler, Jun Xiao, Jidong Zhou, and especially the late Richard Cornes for comments and discussion. We also thank seminar participants at the Federal Trade Commission, Johns Hopkins University, New York University, National University of Singapore, and University of Mannheim, and conference participants at the Monash IO Workshop (2018), Australian National University Workshop in Honor of Richard Cornes (2016), North American Winter Meeting of the Econometric Society (2013), Australasian Economic Theory Workshop (2011), EARIE (2010), and CORE Conference in Honor of Jacques Thisse (2010) for their comments. Imogen Halstead, Jingong Huang, Boon Han Koh, Charles Murry, and Yiyi Zhou have provided excellent research assistance. The first author thanks National Science Foundation for financial support and the Department of Economics at the University of Melbourne for its hospitality. The second author gratefully acknowledges funding from the Australian Research Council (DP0987070).