Aggregative Games and Oligopoly Theory: Short-run and Long-run Analysis

Abstract

We compile an IO toolkit for aggregative games and use inclusive best reply functions to deliver oligopoly comparative statics and ranking of firms' actions and profits. Aggregative games apply to additively separable direct and indirect preferences, as well as generalized quadratic forms. The aggregative game structure delivers immediate consumer welfare results if demand functions have the IIA property. We close the model with a monopolistically competitive fringe to show strong neutrality properties for long-run equilibria. These properties underscore a unifying principle in the literature on merger analysis, privatization, Stackelberg leadership, and cost shocks.

Keywords: Aggregative Games, Comparative Statics, Oligopoly Theory, Monopolistic Competition, Entry, Strategic Substitutes and Complements, IIA Property, Additively Separable Direct and Indirect Utility Functions, Logit/CES; Mergers, Cournot

JEL Classification: D43, L13