Capital structure and tacit collusion in supergame models of oligopoly /
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| Other Authors: | , , |
| Format: | Thesis Book |
| Language: | English |
| Published: |
1990.
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| Subjects: | |
| Online Access: | ProQuest, Abstract Link to OAKTrust copy |
| Abstract: | This dissertation analyzes the influence of capital structure choice on the sustainability of tacit collusion in oligopolistic industries. Tacit collusion occurs when firms in this type of industry perceive their mutual interdependence and succeed in sustaining a cooperative outcome with noncooperative strategies. Analysis of the role of corporate financing decisions in the maintenance of tacit collusion has not been investigated. This dissertation focuses on three aspects of the integration of the firms' financial and product market decisions. The first is the product market variable on which firms collude. Two separate models are developed, the first in which firms choose optimal prices and levels of debt, and the second in which firms choose optimal output levels and debt. The second aspect relates to the agency problem which arises when firms use debt; with each model this problem is explored by considering two different objectives for the firms: equity maximization and market value maximization. The third aspect is the role of corporate taxation. Because the use of debt yields a tax shield when firms are subject to taxation, taxation provides a motive for financing investments with debt rather than other forms of corporate securities. The analysis yields several significant conclusions and implications about optimal capital structure choice and tacit collusion. First, the proposition that a firm's financing and investment decisions can be treated independently is generally not valid in this framework. The use of leverage has significant effects on the price and output levels of the oligopoly. This result implies that models of optimal capital structure must include consideration of the structure and conduct of the industry in which a firm operates. Second, financial leverage has significant effects on the sustainability of collusion. The use of debt affects the cost of deviating from the tacit arrangement, and therefore the decision to defect made by wealth-maximizing equityholders and market value-maximizing managers. Third, the analysis shows that if market value-maximizing firms use risky debt, then output prices are lower relative to their monopoly levels during periods of both high and low industry demand. |
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| Item Description: | Typescript (photocopy). Vita. "Major subject: Economics." |
| Physical Description: | ix, 222 leaves ; 29 cm |
| Bibliography: | Includes bibliographical references. |