Relative profit maximization and the choice of strategic variables in duopoly

Atsuhiro Satoh and Yasuhito Tanaka

MPRA Paper from University Library of Munich, Germany

Abstract: We study implications of the choice of strategic variables, price or quantity, by firms in a duopoly with differentiated goods in which each firm maximizes its relative profit. We consider general demand and cost functions, and show that the choice of strategic variables is irrelevant in the sense that the conditions of relative profit maximization for the firms are the same in all situations, and so any combination of strategy choice by the firms constitutes a sub-game perfect equilibrium in a two stage game such that in the first stage the firms choose their strategic variables and in the second stage they determine the values of their strategic variables. We define the relative profit of a firm as the ratio of its profit over the total profit. But, even if we define the relative profit of a firm as the difference between the profits of firms, we can show the same result.

Keywords: relative profit maximization; choice of strategic variables; duopoly (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2015-03-17
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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