BETRIEBSWIRTSCHAFTLICHES FORSCHUNGS-SEMINAR:

Am Fr., 20.3.1998, von 15.30-17.00 haelt im HS 8 des Betriebswirtschaftszentrums der Universitaet Wien, Bruennerstrasze 72, 1210 Wien,

Dr. Andrea Gaunersdorfer (Uni Wien)

einen Vortrag ueber ihre gemeinsame Arbeit mit Engelbert J. Dockner und Helmut Elsinger,

''The Strategic Role of Dividends and Debt in Markets With Imperfect Competition''.

Eine Kopiervorlage der Papers liegt - soweit vorhanden - im Sekretariat von Prof. Zechner am Betriebswirtschaftszentrum auf.

------------ Abstract:

While many existing models in the literature on financial structure ignore product market strategies, Brander and Lewis (1986) argue that there are important linkages between the two. In particular they show that oligopolistic firms with limited liability follow a more aggressive output strategy as their leverage increases. In a follow up paper Glazer (1994) points out that this result crucially depends on the assumption that debt is short-term. If on the contrary debt is long-term and rival firms choose their equilibrium in periods one and two, they have an incentive to be more collusive in the first period than static oligopolists would be and hence output decreases. On the basis of this result Glazer concludes that the degree of price fluctuation in the product market will increase with the level of the firm's debt. In this paper we argue that the incentive to collude is driven by limited liability and the dividend policy of the firm. We find that increasing leverage causes firms in both periods to increase their output and hence to be more aggressive. Moreover, we show by means of a numerical example that the symmetric game admits multiple equilibria some of which cause firms to choose asymmetric product market strategies. This leads us to conclude that firms with similar leverage and product market characteristics might very well choose quite different product market strategies. =========================================================================