Decentralized Dynamics in Duopoly with Pareto Optimal Outcomes

Leonard Shapiro

Bell Journal of Economics, 1980, vol. 11, issue 2, 730-744

Abstract: This paper describes a particular pair of strategies to be followed by duopolists. At time zero duopolists are producing at a Cournot equilibrium. By following these strategies, the duopolists converge to a Pareto optimum with respect to their profits. The structure of these dynamic strategies is based on managerial considerations. The strategies are self-reinforcing in that profits increase for both producers at all times. They are centralized in that neither duopolist knows directly about the other's cost function or profits or production level.

Date: 1980
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