On the Feedback Solutions of Differential Oligopoly Games with Hyperbolic Demand Curve and Capacity Accumulation

Luca Lambertini () and Arsen Palestini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We characterise the subgame perfect equilibrium of a differential market game with hyperbolic inverse demand where firms are quantity-setters and accumulate capacity over time la Ramsey. The related Hamilton-Jacobi-Bellman are solved in closed form both on infinite and on finite horizon setups and the optimal strategies are determined. Then, we analyse the feasibility of horizontal mergers in both static and dynamic settings, and find appropriate conditions for their profitability under both circumstances. Static profitability of a merger implies dynamic profitability of the same merger. It appears that such a demand structure makes mergers more likely to occur than they would on the basis of the standard linear inverse demand.

JEL-codes: C73 L13 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Related works:
Journal Article: On the feedback solutions of differential oligopoly games with hyperbolic demand curve and capacity accumulation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp862

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