Imitation by price and quantity setting firms in a differentiated market
AbstractWe study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a Salop circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a mutually non-aggressive outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously.
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Bibliographic InfoPaper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 022.
Date of creation: 2013
Date of revision:
Noncooperative Games; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Firm Behavior: Theory; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Production; Pricing; and Market Structure; Size Distribution of Firms; Oligopoly and Other Imperfect Markets;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- 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 and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-BEC-2014-02-02 (Business Economics)
- NEP-COM-2014-02-02 (Industrial Competition)
- NEP-GTH-2014-02-02 (Game Theory)
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