AN ASYMMETRIC OLIGOPOLY MODEL AND A METHOD FOR ITS EMPIRICAL APPLICATION

The purpose of this paper is to develop an asymmetric game-theoretic s tatic oligopoly model suitable for empirical work on oligopolistic mar kets. Prevailing models in applied research on oligopolistic industrie s are mainly of the type conjectural variations, Cournot models, altho ugh these models are known to be ''logically flawed'' from a game-theo retic point of view. As an alternative to these, a Bertrand model with three types of asymmetries is developed: firms can be concurrently as ymmetric in cost levels and in the amount of product differentiation, where the impact from product differentiation on a firm's quantity dem anded is divided into one relative-price component and one size compon ent. This model is solved for different game-theoretic equilibria solu tions. The conduct and performance of individual firms can be analyzed , and welfare effects in terms of consumer-surplus levels are calculat ed on the firm level. The model contains enough structure for direct u se in applied research. A simple method for empirical use of the model is proposed, which minimizes the econometric task: By estimating n 1 demand elasticities, the asymmetric market-demand structure for the n firms will be completely specified.