Price vs Quantity in a Dynamic Duopoly Game with Capacity Accumulation

Roberto Cellini and Luca Lambertini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We present a differential duopoly game with capacity accumulation, where the closed-loop memoryless Nash equilibrium collapses into the open-loop Nash equilibrium. Symmetric Bertrand and Cournot equilibria are observationally equivalent. This result encompasses the conclusions of the well known model Kreps and Scheinkman (1983) concerning the equivalence between the Bertrand and Cournot settings in a static two-stage game. However, in the dynamic framework, the equilibrium outcome is different, when one firm plays la Bertrand and the other la Cournot. This has relevant bearings upon firms` endogenous choice of the market variable, as well as the social desirability of prices vs quantities. For some admissible parameter ranges, the conflict between private and social incentives concerning the choice between prices and quantity disappears.

Date: 2002
New Economics Papers: this item is included in nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:449

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