A Dynamic Oligopoly with Price Stickiness and Risk-Averse Agents
Edilio Valentini () and
Paolo Vitale ()
Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2022, vol. 8, issue 3, No 7, 697-718
Abstract In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. The continuous-time limit of our formulation nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Econometrica 55:1151–1164, 1987) and extends it by accommodating uncertainty and risk-aversion. We show that in the continuous-time limit of our infinite horizon formulation the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk-aversion collapses to Fershtman and Kamien’s analogue.
Keywords: Differential oligopoly games; Uncertainty and Risk-aversion; Sticky prices; C73; D43; L13 (search for similar items in EconPapers)
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