Abstract
Price conjectural variations are estimated to measure the degree of price competition in a product differentiated oligopoly. The empirical model is a simultaneous equation system of product demand and price reaction functions. Own and cross price demand elasticities are estimated in conjunction with the price conjectural variations and price reaction function elasticities. The conjectural variations are estimated for pairs of ready-to-eat breakfast cereal products using brand price and quantity data. The empirical results reject competitive brand pricing behavior in favor of independent or collusive pricing. Further, the hypothesis of a unique consistent conjecture is rejected.
Similar content being viewed by others
References
Amemiya, Takeshi. "The Maximum Likelihood Estimator and the Nonlinear Three Stage Least Squares Estimator in the General Nonlinear Simultaneous Equation Model,"Econometrica, 45 (1977): 955–968.
Baker, Jonathan and Timothy Bresnahan. "The Gains from Merger or Collusion in Product Differentiated Industries,"Journal of Industrial Economics, 33 (1985): 427–444.
Bresnahan, Timothy. "Duopoly Models with Consistent Conjectures,"American Economic Review, 71 (1981): 934–945.
Cubbin, John. "Apparent Collusion and Conjectural Variations in Differentiated Oligopoly,"International Journal of Industrial Organization, 1 (1983): 155–163.
Friedman, James.Oligopoly Theory. Cambridge: Cambridge Press, 1983.
Geroski, Paul A. "The Empirical Analysis of Conjectural Variations in Oligopoly," unpublished, 1982.
Gollop, Frank M. and Mark J. Roberts. "Firm Interdependence in Oligopolistic Markets,"Journal of Econometrics, 10 (1979): 313–331.
Grabowski, Henry and Dennis C. Mueller. "Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates,"Bell Journal of Economics, 9 (1978): 328–343.
Headen, Robert S. and James W. McKie.The Structure, Conduct, and Performance of the Breakfast Cereal Industry: 1954–1964. Cambridge: Arthur D. Little, 1986.
Iwata, Gyoichi. "Measurement of Conjectural Variations in Oligopoly,"Econometrica, 42 (1974): 947–965.
Kamien, Morton I. and Nancy L. Schwartz. "Conjectural Variations,"Canadian Journal of Economics, 16 (1983): 191–211.
Laitner, J. "Rational Duopoly Equilibria,"Quarterly Journal of Economics, 95 (1980): 641–662.
Liang, J. Nellie. "An Empirical Conjectural Variation Model of Oligopoly," Working Paper No. 151, Federal Trade Commission, 1987.
Roberts, Mark J. "Testing Oligopolistic Behavior,"International Journal of Industrial Organization, 2 (1984): 367–384.
Rogers, Robert P. "The Measurement of Conjectural Variations in an Oligopoly Industry," Working Paper No. 102, Federal Trade Commission, 1983.
Scherer, Frederic M. "The Breakfast Cereal Industry," in Walter Adams, ed.,The Structure of American Industry. New York: MacMillan, 1985.
Schmalensee, Richard. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry,"Bell Journal of Economics, 9 (1978): 305–327.
—— "Econometric Diagnosis of Competitive Localization,"International Journal of Industrial Organization, 3 (1985): 57–70.
Slade, Margaret E. "Conjectures, Firm Characteristics, and Market Structure,"International Journal of Industrial Organization, 4 (1986): 347–369.
Ulph, David. "Rational Conjectures in the Theory of Oligopoly,"International Journal of Industrial Organization, 1 (1983): 131–154.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Liang, J.N. Price reaction functions and conjectural variations. Rev Ind Organ 4, 31–58 (1989). https://doi.org/10.1007/BF02284668
Issue Date:
DOI: https://doi.org/10.1007/BF02284668