Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5078666 | International Journal of Industrial Organization | 2008 | 9 Pages |
Abstract
We analyze the strategic use of the debt in a duopoly model of Cournot competition. We consider a two stage model where debt acts as a commitment variable and we characterize subgame perfect equilibria. We differ from several models based on the strategic value of the debt such as Wanzenried [Wanzenried G. (2003), “Capital Structure Decisions and Output Market Competition Under Demand Uncertainty”, International Journal of Industrial Organization 21, 171-200.] in showing that, if one assumes that the debt level acts as a commitment device, it is incorrect to consider bankruptcy risk as a strategic variable. We demonstrate properties concerning the influence of price volatility and product differentiation upon equilibrium values of production, default risk and debt obligation.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Bernard Franck, Nicolas Le Pape,