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Price and non-price competition in an oligopoly: an analysis of relative payoff maximizers

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  • Hamed Markazi Moghadam

    (Leibniz University Hannover)

Abstract

Do firms that engage in relative payoff maximizing (RPM) behavior always choose a strategy profile that results in tougher competition compared to firms that engage in absolute payoff maximizing (APM) behavior? We address this question by way of a simple model of symmetric oligopoly where firms simultaneously select a two-dimensional strategy set consisting of a price variable and a non-price (i.e., quality) variable. Our results show that equilibrium solutions of RPM and APM are distinct. It is further shown that the standard result of Nash equilibrium in oligopoly, namely, that the non-price variable is used to soften price competition, survives also when firms are concerned with relative payoff considerations.

Suggested Citation

  • Hamed Markazi Moghadam, 2020. "Price and non-price competition in an oligopoly: an analysis of relative payoff maximizers," Journal of Evolutionary Economics, Springer, vol. 30(2), pages 507-521, April.
    • Handle: RePEc:spr:joevec:v:30:y:2020:i:2:d:10.1007_s00191-019-00653-8
    DOI: 10.1007/s00191-019-00653-8
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    More about this item

    Keywords

    Relative payoff maximizing (RPM); Oligopoly; Finite population evolutionary stable strategy (FPESS); Quality;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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