The dynamics of a differentiated duopoly with quantity competition

Luciano Fanti and Luca Gori ()

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: We analyse the dynamics of a Cournot duopoly game with heterogeneous players to investigate the effects of micro-founded differentiated products demand. The present analysis, which modifies and extends Zhang et al. (2007) Zhang, J., Da, Q., Wang, Y., 2007. Analysis of nonlinear duopoly game with heterogeneous players. Economic Modelling 24, 138-148) and Tramontana, F., (2010) (Tramontana, F., 2010. Heterogeneous duopoly with isoelastic demand function. Economic Modelling 27, 350-357), reveals that a higher degree of product differentiation may destabilise the market equilibrium. Moreover, we show that a cascade of flip bifurcations may lead to periodic cycles and ultimately chaotic motions. Since a higher degree of product differentiation implies weaker competition, then a theoretical implication of our findings, that also constitute a policy warning for firms, is that a fiercer (weaker) competition tends to stabilise (destabilise) the unique positive Cournot-Nash equilibrium of the economy.

Keywords: Bifurcation; Chaos; Cournot; Oligopoly; Product differentiation. (search for similar items in EconPapers)
JEL-codes: C62 D43 L13 (search for similar items in EconPapers)
Date: 2011-01-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
Note: ISSN 2039-1854
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The dynamics of a differentiated duopoly with quantity competition (2012)
Working Paper: The dynamics of a differentiated duopoly with quantity competition (2011)
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