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A Generalized Framework for Endogenous Timing in Duopoly Games and an Application to Price-Quantity Competition

Zhu, Quantao and Wu, Xinwang and Sun, Laixiang (2014) 'A Generalized Framework for Endogenous Timing in Duopoly Games and an Application to Price-Quantity Competition.' Journal of Economics, 112 (2). pp. 137-164.

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Abstract

This paper extends the analysis of duopoly market by distinguishing two types of competition: (i) the basic form of competition where each firm is unrestricted in its choice of price and quantity and (ii) the non-basic form of competition where firms’ strategic choices over price and quantity are limited a priori. Our analysis focuses on the former rather than the latter. Under a very general setting of concave industrial revenue and asymmetric convex costs, we show that each firm typically makes more profit in the subgame perfect Nash equilibrium (SPNE) of the leader-follower price-quantity competition, one of the basic competition forms, than in the SPNE of the leader-follower price competition and that each firm always makes more profit under simultaneous move price-quantity competition than under simultaneous move price competition. We establish a generalized framework for endogenous timing in duopoly games which is capable of embodying and overcoming the inconsistency across the existing three frameworks in the field. We highlight the advantages of a 3-period general framework.

Item Type: Journal Article
Keywords: Duopoly Games, Endogenous Timing, Basic Competition Forms, Price-Quantity Competition
SOAS Departments & Centres: Legacy Departments > Faculty of Law and Social Sciences > School of Finance and Management
ISSN: 09318658
DOI (Digital Object Identifier): https://doi.org/10.1007/s00712-013-0347-3
Depositing User: Laixiang Sun
Date Deposited: 12 Apr 2013 15:48
URI: http://eprints.soas.ac.uk/id/eprint/15875

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