Strategic incentives in dynamic duopoly

Byoung Jun, Xavier Vives

    Research output: Contribution to journalArticlepeer-review

    71 Citations (Scopus)

    Abstract

    We compare steady states of open loop and locally stable Markov perfect equilibria (MPE) in a general symmetric differential game duopoly model with costs of adjustment. Strategic incentives at the MPE depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the MPE there is intertemporal strategic substitutability or complementarity. A full characterization is provided in the linear-quadratic case. Then with price competition and costly production adjustment, static strategic complementarity turns into intertemporal strategic substitutability and the MPE steady-state outcome is more competitive than static Bertrand competition.

    Original languageEnglish
    Pages (from-to)249-281
    Number of pages33
    JournalJournal of Economic Theory
    Volume116
    Issue number2
    DOIs
    Publication statusPublished - 2004 Jun

    Keywords

    • Adjustment costs
    • Differential game
    • Markov equilibrium
    • Stackelberg

    ASJC Scopus subject areas

    • Economics and Econometrics

    Fingerprint

    Dive into the research topics of 'Strategic incentives in dynamic duopoly'. Together they form a unique fingerprint.

    Cite this