Dynamic Duopolistic Competition with Sticky Prices

Chaim Fershtman () and Morton I Kamien

Econometrica, 1987, vol. 55, issue 5, 1151-64

Abstract: The authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially-weighted function of accumulated past consumption. This implies that the current price of the good does not decline by as much to accommodate any given level of current consumption. Our an alysis is conducted in terms of a differential game. It is found that the equilibrium price corresponding to the open-loop Nash equilibriu m strategies approaches the static Cournot equilibrium price while th e equilibrium price corresponding to the closed-loop Nash equilibrium strategies, which are subgame perfect, approaches a price below it. Copyright 1987 by The Econometric Society.

Date: 1987
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