Working Paper: CEPR ID: DP1194
Authors: Jonathan Haskel; Pasquale Scaramozzino
Abstract: This paper examines how firms interact with their rivals. The main novelty of our approach is that we let conjectural variations depend on the actual ability of other firms to react, which we measure by both the physical capacity and financial status of firms. Our main findings are threefold. First, in general, spare physical capacity leads rival firms to conjecture more aggressive behaviour. Second, financial variables have a complex effect on conjectures. We interpret this as due to signalling effects being more important in some industries, and financial distress in others. Third, leader-follower interactions appear to be relevant in all of the industries considered.
Keywords: oligopolies; conjectural variations; panel data
JEL Codes: L13; L65; L68; L73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| spare physical capacity (E22) | conjectural behavior (D84) |
| higher debt levels (H63) | accommodating behavior (D16) |
| higher debt levels (H63) | aggressive behavior (C92) |
| leader-follower dynamics in general chemicals (C69) | leaders ignore other leaders (D70) |
| leader-follower dynamics in general chemicals (C69) | leaders react to followers (D70) |
| leader-follower dynamics in furniture and bedding (L68) | leaders ignore other leaders (D70) |
| leader-follower dynamics in furniture and bedding (L68) | leaders respond to followers (M54) |
| leader-follower dynamics in packaging and paper (L23) | leaders react to other leaders (D79) |
| leader-follower dynamics in packaging and paper (L23) | leaders ignore followers (D70) |
| leader-follower dynamics in packaging and paper (L23) | followers consider all firms (L20) |