| Abstract: | Previous stochastic cost-volume-profit (CVP) models have assumed that the firm was operating under either perfect competition or monopolistic conditions. This paper presents a stochastic CVP model applicable to oligopolistic competition. Each firm is assumed to maximize a linear function of the expected value and the standard deviation of its random profits. The result is a game-theoretic model that is solved using the concept of a Nash equilibrium. The results of the model are used to examine a firm's competitive strength. The model can be easily modified to accommodate a measure of risk based on the capital asset pricing theory. |
