Price and Nonprice Rivalry in Oligopoly: The Integrated Battleground

442 Pages·1998·35.716 MB·English

by  Robert E. Kuenne (auth.)

PRICE AND NONPRICE RIVALRY IN OLIGOPOLY
Also by Robert E. Kuenne
DYNAMICS AND CONFLICT IN REGIONAL STRUCTURAL
CHANGE (co-editor with Manas Chatterji)
ECONOMIC mSTICE IN AMERICAN SOCIETY
EUGEN VON BOHM-BAWERK
GENERAL EQUILffiRIUM ECONOMICS: Space, Time and Money
MICROECONOMIC THEORY: Theoretical and Applied,
Volumes I, II and III
MICROECONOMIC THEORY OF THE MARKET MECHANISM:
A General Equilibrium Approach
MONOPOLISTIC COMPETITION THEORY: Studies in Impact
(editor)
NEW FRONTIERS IN REGIONAL SCIENCE (co-editor with
Manas Chatterjl)
RIVALROUS CONSONANCE: A Theory of General Oligopolistic
Equilibrium
THE ATTACK SUBMARINE: A Study in Strategy
THE ECONOMICS OF OLIGOPOLISTIC COMPETITION: Price and
Nonprice Rivalry
THE POLARIS MISSILE STRIKE: A General Economic Systems
Analysis
THE THEORY OF GENERAL ECONOMIC EQUILIBRIUM
WARRANTIES IN WEAPON SYSTEMS PROCUREMENT (with
P. H. Richanbach, F. Ridell and R. Kaganojf)
Price and Nonprice
Rivalry in Oligopoly
The Integrated Battleground
Robert E. Kuenne
Emeritus Professor of Economics
Princeton University
First published in Great Britain 1998 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-26754-5 ISBN 978-1-349-26752-1 (eBook)
DOI 10.1007/978-1-349-26752-1
First published in the United States of America 1998 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-21573-6
Library of Congress Cataloging-in-Publication Data
Kuenne, Robert E.
Price and nonprice rivalry in oligopoly : the integrated
battleground I Robert E. Kuenne.
p. em.
Includes bibliographical references and index.
ISBN 978-0-312-21573-6 (hardcover)
I. Oligopolies. 2. Pricing. 3. Competition. I. Title.
HD2757.3.K838 1998
338.8'2--<ic21 98-15287
CIP
© Robert E. Kuenne 1998
Softcover reprint of the hardcover 1st edition 1998 978-0-333-73732-3
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with
written permission or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988, or under the terms of any licence permitting limited copying issued by
the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP 9HE.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work in accordance
with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and
sustained forest sources.
10 9 8 7 6 5 4 3 2 I
07 06 05 04 03 02 01 00 99 98
To the memory of our lost princess
Olivia Michelle Kuenne
1991-97
Death lies on her like an untimely frost
Upon the sweetest flower of all the field
Contents
List of Figures Xl
List of Tables Xlll
Preface xix
PART I SOME NECESSARY PRELIMINARIES
1 On Definitions and the Problems of Measurement 3
1 A manifesto 3
2 Some conceptual challenges 8
3 Treating the product 9
4 The measurement and scaling problem 10
5 The case for quasi-measurement or scaling 17
6 Summary and conclusions 19
2 Core Characteristics Analysis 21
1 Core characteristics analysis 22
2 Methodologies for quasi-measurement of characteristics:
preferences excluded 24
3 Methodologies for quasi-measurement of
characteristics: preferences included 30
4 The computation of distances in characteristics
dimensions and spaces 33
5 An experiment in characteristics scaling and product
distance determination 40
6 Summary and conclusions 47
3 Rivalrous Consonance: An Approach to Mature Oligopolistic
Competition 50
1 Mature oligopoly 52
2 A simple duopoly model 58
Vll
viii Contents
3 Social welfare considerations 62
4 Summary and conclusions 78
PART II DECISION MAKING IN OLIGOPOLY: APPROACHES IN
THE LITERATURE
4 Hotelling Models and Other Spatial Analogs 83
1 Spatial analogs 83
2 Hotelling models in a linear product space 84
3 Salop's model with prices variable, locations fixed 88
4 Models with F.O.B. prices fixed, product locations
variable: Eaton and Lipsey's model 94
5 Models with F.O.B. prices and locations variable 103
6 Lessons, conjectures, and potential 103
5 Characteristics as Objects of Consumer Preference 105
1 The consumption technology 105
2 A critique of the characteristics approach 116
3 Conclusions 125
6 Game-theoretic and Monopolistic Competition Analyses 127
1 Introduction 127
2 Game-theoretic methodology 128
3 Monopolistic competition methodology 138
7 Pure Competition and Monopoly: A Beginning 153
1 Separable pricing of characteristics 153
2 Nonseparable pricing of characteristics 165
3 The welfare implications of simple oligopoly under
rivalrous consonance: a comparison 169
4 A summary 172
Contents ix
PART III THEORETICAL GUIDANCE TO AND USAGE OF
MODELING METHODOLOGIES
8 The Isolated Firm and Consumer Benchmarking of
Measurable Characteristics 177
1 Unwarrantied products with non aging characteristics 179
2 Warrantied products with non aging characteristics 189
3 Unwarrantied products with aging characteristics 196
4 Warrantied products with aging characteristics 208
5 Some conclusions and conjectures 218
9 Oligopolistic Competition and Consumer Benchmarking in a
Rivalrous Consonance Market Structure: Measurable
Characteristics 220
1 Purpose and structure of the model 220
2 The model 221
3 First-order conditions 223
4 Algorithm to solve the model 227
5 Generalization to n firms 260
6 Conclusions 261
10 OIigopolistic Competition with Scaling of Characteristics 266
1 Scaling by quality indifference premia 266
2 Modell: Spatial distances as metric with no tacit collusion 269
3 Model 2: Spatial distances as metric with the rivalrous
consonance mode of tacit collusion 287
4 A summary and conclusions 295
11 Nodal Changes in Brand Locations in Product Space 298
1 Nodal relocation on a product space without tacit
collusion 299
2 Nodal relocation on a product space with tacit collusion 315
x Contents
3 Nodal relocation with cost structure equalization 320
4 Tacit collusion and entry of new firms 323
5 Summary and conclusions 326
12 Selling Costs and Cognitive Distancing 328
1 Modell - Informational advertising with no tacit
collusion, revenue-determined advertising 329
2 Model 2 - Informational advertising with no tacit
collusion, profit-optimal advertising 343
3 Model 3 - Informational and cognitive positioning
advertising with no tacit collusion 359
4 Model 4 - Informational and cognitive positioning
advertising under rivalrous consonance 366
5 Summary and conclusions 378
PART IV EPILOG AND PROSPECTUS
13 A Final Word 391
1 In the way of a recapitulation 391
2 Results and conjectures 395
3 Deficiencies in models and modeling methodology 398
Notes 401
Bibliography 419
Index 423