Price vs quantity in a dynamic duopoly game with capacity accumulation

Economics

Speaker:Luca Lambertini, University of Bologna
Date: Friday 6 December 2002
Time: 16:15
Location: Room 106 Streatam Court

Further details

(with Roberto Cellini)

We present a differential duopoly game with capital accumulation, where the closed-loop memoryless Nash equilibrium collapses into the open loop equilibrium. Symmetric Bertrand and Cournot equilibria are observationally equivalent. This result encompasses the conclusions of the well-known model by Kreps and Scheinkmann (1983) concerning the equivalence of the Bertrand and Cournot settings in a static two-stage game. However, in the dynamic framework, the equilibrium outcome is different, when one firm plays à la Bertrand and the other à la Cournot. This has relevant bearings upon firms' endogeneous choice of the market variable, as well as the social desirability of prices versus quantities. For some admissible parameter ranges, the conclict between private and social incentives concerning the choice between prices and quantities diasappears.