Firms’ Objectives and Internal Organisation in a Global by Luca Lambertini (eds.)

By Luca Lambertini (eds.)

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Extra resources for Firms’ Objectives and Internal Organisation in a Global Economy: Positive and Normative Analysis

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The s um of profits obtained in the two atTangements is the sa me. )(a - c - e - Z + 2ae):s 0 saying tha l D profits are larger with Q setti ng . • The above result depalis from traditional conclus ions we have obtained in the previous sections confirming the received wisdom that quantity se lling is better for finns under uncertainty (Klemperer and Mayer, 1986). Our result is quite new and worth emphasizing. First of all, aggregate expected pmfits are equal acmss the two marketing strategies, quantity and price sett ing.

MOI·eover, 0 ga ins fro m a positive shock. while U docs not. PROOF In thi s case th e demand fOI· the final good is: p=u-q+e (10) The n, the profit or the 0 film is: (11 ) lt D ", pq -c q - dq2 _gq • We define A '" a - c - z. 39 FLRMS' OBJECfLVES AND I NTERNAL ORGANISATION IN A GLOBAL ECONOMY If we take the Foe of expected profit with respect to the quantity we get: (12) where the set quantity, equa l to the its expected value, is a nonstochastic magnitude. The profit of the U finn is: (13) 1tu ==gq - zq Following a similar procedure as in the previous s ubsection we obtain the price set by U: (14) ChtU -ag= 0 =>8s= a-c+z 2 from which we have the quantity sold : (15) q' = AI[4(l+d)] The final good - stochastic - price is: (16) p = a + e - AI[4(1+d)] The profi t of U is nonstochastic since U takes from D the quantity set which is nonstochastic.

3. Consider tha t the pro fit maximising producer market s ha re al his right goes to zero if the price is higher (PA >- Ps ) or is undetermined if (PA "' PR). -d to the indelenninacy situa tion.

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