Sales Maximization and Oligopoly: A Case Study

Abstract

THIS study compares the price implications of various models of price theory with the observed prices in a particular industry. The purpose of this comparison is to say something about the reliability of various models in predicting observed prices in a specific cost-demand environment. Empirical estimates of demand and cost relationships were made for the corrugated specialties industry from survey data of the three firms in the industry and their customers. Using a profit maximizing model, an unconstrained sales revenue maximization model, (naive SRM), a constrained sales revenue maximization model (SRM) and a Fellner model, estimates were made of prices, quantities, and rates of return on sales for each model as if the estimated demand and cost relationships were valid. In addition, estimates of bands of prices were made for the Fellner model (integrated model) using assumptions of sales revenue maximization rather than profit maximization. Section I presents the estimated demand and cost relationships. The various models and resulting estimations are presented in Section II, and Section III presents the integrated models. Conclusions and summary occupy the usual position.