Imitation by price and quantity setting firms in a differentiated market

Abhimanyu Khan and Ronald Peeters

Journal of Economic Dynamics and Control, 2015, vol. 53, issue C, 28-36

Abstract: We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market-clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium outcome of the underlying stage game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a “mutually non-aggressive” outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market-clearing always results endogenously.

Keywords: Oligopoly; Imitation; Evolution (search for similar items in EconPapers)
JEL-codes: C72 C73 D21 D43 L11 L13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Imitation by price and quantity setting firms in a differentiated market (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:53:y:2015:i:c:p:28-36

DOI: 10.1016/j.jedc.2015.01.006

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