DO OTHER FIRMS MATTER IN OLIGOPOLIES

This paper examines how firms interact with their rivals. The main nov elty of our approach is that we let conjectural variations depend on t he actual ability of other firms to react, which we measure by both th e physical capacity and financial status of firms. Our main findings a re twofold. First, physical and financial capacity significantly affec t conjectures. Second, we recover the implied conjectural variations a nd reject homogeneous conjectures. We generally find that leaders expe ct aggressive responses, and followers are Cournot players.