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Stability Analysis in a Bertrand Duopoly with Different Product Quality and Heterogeneous Expectations

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  • Luciano Fanti

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  • Luca Gori

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Abstract

We study the local stability properties of a nonlinear Bertrand duopoly with vertical differentiation and heterogeneous players under the hypotheses of both covered and uncovered markets. In the former case, the unique pure strategy Nash equilibrium can undergo a flip bifurcation when the extent of consumer’s heterogeneity increases. In the latter, the quality differential determines the stability of prices over time. Numerical evidence is provided to show the occurrence of endogenous fluctuations. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Luciano Fanti & Luca Gori, 2013. "Stability Analysis in a Bertrand Duopoly with Different Product Quality and Heterogeneous Expectations," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 481-501, December.
  • Handle: RePEc:kap:jincot:v:13:y:2013:i:4:p:481-501
    DOI: 10.1007/s10842-012-0134-9
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    References listed on IDEAS

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    1. repec:spr:annopr:v:238:y:2016:i:1:d:10.1007_s10479-015-2057-4 is not listed on IDEAS

    More about this item

    Keywords

    bifurcation; duopoly; heterogeneous expectations; price competition; vertical differentiation; C62; D43; L13; L15;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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