A Note on the Equivalence of the Conjectural Variations Solution and the Coefficient of Cooperation

Abstract

This note shows that in a general symmetric quantity-setting oligopoly, the conjectural variations solution replicates that of a model where the “coefficient of cooperation” defined by

Export cartel and consumer welfare

“…Friedman and Mezzetti () consider a dynamic model with bounded rationality to provide a logically consistent interpretation of conjectural variation. In a symmetric quantity‐setting oligopoly, Escrihuela‐Villar () shows that the solutions generated from a conjectural variations’ model and from a model with a “coefficient of cooperation” are equivalent.…”

Downstream competition and profits under different input price bargaining structures

“…Finally, given that in the literature there are alternative measures defining the intensity of competition among firms, we have also tested the model using the notion of competition intensity of rivalry, also known as coefficient of cooperation (see Martin 2002, pp. 52-55;Escrihuela-Villar 2015, 2016. Our analysis shows that, under the coefficient of cooperation, irrespective of the bargaining structure, the standard result of full collusion maximizing downstream firms' profits holds.…”

Union negotiations, product market cooperation, and profits

“…A third measure of the degree of market competition is the coefficient of cooperation (CC, see Cyert & DeGroot, 1973; Edgeworth, 1881, p. 53; Escrihuela‐Villar, 2015, 2016; Martin, 2002, p. 51). This approach is slightly different from the previous ones.…”

“…The results of the present model have immediate consequences for governments and antitrust authorities. Martin (2002) and Escrihuela‐Villar (2015) state that, in a symmetric quantity‐setting oligopoly, conjectural variations and CC are basically equivalent: firms produce the same quantities under the different measures of market competition. This finding turns out to be particularly advantageous to substantiate the use of the conjectural variations solution to estimate the degree of oligopoly power, and therefore, based on those estimates, to design an appropriate intervention by antitrust bodies.…”

“…Despite their different approach to model firms' product market competition/cooperation, Martin (2002) and Escrihuela‐Villar (2015, 2016) have shown that, in a general symmetric quantity‐setting oligopoly with exogenous input costs, the conjectural variations solution is equivalent to that of the CC and therefore theoretical and empirical results based on conjectural variations can be reinterpreted using a widely accepted approach that is consistent with the game‐theoretic rationality.…”