Some Examples of Dynamic Cournot Duopoly with Inventory

Larry Arvan

RAND Journal of Economics, 1985, vol. 16, issue 4, 569-578

Abstract: This article analyzes a two-period game where firms can produce inventory in the first period for sale in the second period. We assume that revenues and costs are time invariant and that the firms are symmetric. We focus on the nature and the existence of the subgame perfect equilibrium of this model. We use examples to show that the Nash value functions defined on the joint inventory vector are likely to be ill-behaved. In particular, they need not be concave nor even continuous in the firm's own inventory. As a result, asymmetric equilibrium is possible. When average production costs are falling, single-firm operation can occur in equilibrium. Nonexistence is also a distinct possibility.

Date: 1985
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