Evolution of Behavior When Duopolists Choose Prices and Quantities

Abhimanyu Khan and Ronald Peeters

Dynamic Games and Applications, 2020, vol. 10, issue 2, No 8, 493-508

Abstract: Abstract We study the stable market outcome that evolves when firms, that operate in a spatially differentiated duopolistic market, recurrently choose prices and quantities via an imitation dynamic. In particular, given that firms choose both prices and quantities, we do not explicitly impose market clearing. We find that: (i) a market-clearing outcome always belongs to the set of stable long-run outcomes, (ii) when the level of market differentiation is low, non-market-clearing outcomes (with excess supply as well as excess demand) are also stable, (iii) when the level of market differentiation is not too high or too low, the stable long-run outcomes imply market clearing at prices above monopoly level, and (iv) when the level of market differentiation is high, the stable long-run outcome implies market clearing at the monopoly price.

Keywords: Duopoly; Horizontal differentiation; Price–quantity competition; Imitation; Long-run stability (search for similar items in EconPapers)
JEL-codes: C72 C73 D21 D43 L11 L13 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Evolution of behavior when duopolists choose prices and quantities (2011)
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DOI: 10.1007/s13235-019-00325-z

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