Strategic incentives in dynamic duopoly

Jun, Byoung Heon; Vives, Xavier

doi:10.1016/j.jet.2003.08.005

Cited by 99 publications

(73 citation statements)

References 33 publications

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“…Given the fact that we have to deal with ten non-linear equations, to simplify the mathematical tractability of the model, we restrict our analysis to a symmetric Markov perfect equilibrium. 14 This implies that from equations 7.1) and 7.2) we have…”

Section: The Modelmentioning

confidence: 96%

Dynamic Price Competition with Price Adjustment Costs and Product Differentiation

Vernasca

2003

SSRN Journal

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We study a discrete time dynamic game of price competition with spatially di¤erentiated products and price adjustment costs. We characterise the Markov perfect and the open-loop equilibrium of our game. We …nd that in the steady state Markov perfect equilibrium, given the presence of adjustment costs, equilibrium prices are always higher than prices at the repeated static Nash solution, even though, adjustment costs are not paid in steady state. This is due to intertemporal strategic complementarity in the strategies of the …rms and from the fact that the cost of adjusting prices adds credibility to high price equilibrium strategies. On the other hand, the stationary open-loop equilibrium coincides always with the static solution. Furthermore, in contrast to continuous time games, we show that the stationary Markov perfect equilibrium converges to the static Nash equilibrium when adjustment costs tend to zero. Moreover, we obtain the same convergence result when adjustment costs tend to in…nity.-

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Section: The Modelmentioning

confidence: 96%

Dynamic Price Competition with Price Adjustment Costs and Product Differentiation

Vernasca

2003

SSRN Journal

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“…Jun and Vives 2004), where capacity investments of single-product firms engaged in oligopolistic competition have been characterized both in the framework of open-loop Nash equilibria and Markovperfect Nash equilibria. As pointed out, for example, in Dockner (1992) intertemporal strategic effects present in Markov Perfect Equilibria imply higher (lower) investments compared to open-loop scenarios if the products of competitors are substitutes (complements).…”

Section: Literature Reviewmentioning

confidence: 99%

R&D competition versus R&D cooperation in oligopolistic markets with evolving structure

Dawid

Kopel

Kort

2013

International Journal of Industrial Organization

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This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to realize a product innovation. Production capacities of both firms are product specific. It is shown that firms anticipate a future product innovation by under-investing (if the new product is a substitute to the established product) and higher profits, and over-investing (in case of complements) and lower profits, compared to the corresponding standard capital accumulation game. This anticipation effect is stronger in the case of R&D cooperation. Furthermore, since due to R&D cooperation firms introduce the new product at the same time, this leads to intensified competition and lower firm profits right after the new product has been introduced. In addition, we show that under R&D competition the firm that innovates first, overshoots in new-product capacity buildup in order to exploit its temporary monopoly position. Taking into account all these effects, the result is that, if the new product is neither a close substitute nor a strong complement of the established product, positive synergy effects in R&D cooperation are necessary to make it more profitable for firms than R&D competition.

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“…The third one employs a hyperbolic demand with sticky prices (as in [24] and [13]) as well, but leaves the merger issue out of the picture. Other non linear-quadratic structures are investigated by [16] and [17]. 4 The aim of this paper is to illustrate a way out of the aforementioned problem, o¤ered by dynamic game theory.…”

Section: Introductionmentioning

confidence: 99%

On the feedback solutions of differential oligopoly games with hyperbolic demand curve and capacity accumulation

Lambertini

Палестини

2014

European Journal of Operational Research

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1 We would like to thank Davide Dragone and Alessandro Tampieri for stimulating discussions and insightful suggestions. The usual disclaimer applies. AbstractWe characterise the subgame perfect equilibrium of a di¤erential market game with hyperbolic inverse demand where …rms are quantity-setters and accumulate capacity over time à la Ramsey. The related Hamilton-JacobiBellman are solved in closed form both on in…nite and on …nite horizon setups and the optimal strategies are determined. Then, we analyse the feasibility of horizontal mergers in both static and dynamic settings, and …nd appropriate conditions for their pro…tability under both circumstances. Static pro…tability of a merger implies dynamic pro…tability of the same merger. It appears that such a demand structure makes mergers more likely to occur than they would on the basis of the standard linear inverse demand.JEL Classi…cation: C73, L13

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Strategic incentives in dynamic duopoly

Cited by 99 publications

References 33 publications

Dynamic Price Competition with Price Adjustment Costs and Product Differentiation

Dynamic Price Competition with Price Adjustment Costs and Product Differentiation

R&D competition versus R&D cooperation in oligopolistic markets with evolving structure

On the feedback solutions of differential oligopoly games with hyperbolic demand curve and capacity accumulation

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