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"Rational" Duopoly Equilibria

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  • John Laitner

Abstract

This paper examines duopoly models in which each firm tries to guess the reaction of its rival to a change in its output. We seek equilibria in which the guesses are accurate, or "rational." For static models we discover that many output combinations (X, Y) can fit into such equilibria and that our concept of "rationality" must necessarily be one-sided: if a firm has accurate expectations at (X, Y) about its rival's reactions, the competitor's reactions cannot themselves be based on "rational" calculations. Turning to a dynamic model, we find that an oversupply of solution pairs continues to be a problem.

Suggested Citation

  • John Laitner, 1980. ""Rational" Duopoly Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 95(4), pages 641-662.
  • Handle: RePEc:oup:qjecon:v:95:y:1980:i:4:p:641-662.
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    File URL: http://hdl.handle.net/10.2307/1885485
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    Cited by:

    1. N. Quérou & M. Tidball, 2014. "Consistent conjectures in a dynamic model of non-renewable resource management," Annals of Operations Research, Springer, vol. 220(1), pages 159-180, September.
    2. Huppmann, Daniel, 2013. "Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79758, Verein für Socialpolitik / German Economic Association.
    3. Bernard Walliser, 1982. "Equilibres et anticipations," Revue Économique, Programme National Persée, vol. 33(4), pages 594-638.
    4. Figuieres, Charles & Tidball, Mabel & Jean-Marie, Alain, 2004. "On the effects of conjectures in a symmetric strategic setting," Research in Economics, Elsevier, vol. 58(1), pages 75-102, March.
    5. Jesús Antón López, 1996. "Modelos de duopolio con variaciones conjeturales: Un análisis gráfico de la asimetría," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 96-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
    6. Turnovsky, Stephen J., 1986. "Optimal tariffs in consistent conjectural variations equilibrium," Journal of International Economics, Elsevier, vol. 21(3-4), pages 301-312, November.
    7. repec:wiw:wus005:6277 is not listed on IDEAS
    8. Damjanovic, Tatiana & Ulph, David, 2010. "Tax progressivity, income distribution and tax non-compliance," European Economic Review, Elsevier, vol. 54(4), pages 594-607, May.
    9. David Levine, 1981. "The Enforcement of Collusion in a Simple Oligopoly," UCLA Economics Working Papers 211, UCLA Department of Economics.
    10. Friedman, James W. & Mezzetti, Claudio, 2002. "Bounded rationality, dynamic oligopoly, and conjectural variations," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 287-306, November.
    11. Alex Possajennikov, 2004. "Evolutionary Stability of Constant Consistent Conjectures," Game Theory and Information 0405009, University Library of Munich, Germany.
    12. repec:spr:joptap:v:152:y:2012:i:1:d:10.1007_s10957-011-9880-9 is not listed on IDEAS
    13. Ludovic A. Julien, 2010. "From Imperfect To Perfect Competition: A Parametric Approach Through Conjectural Variations," Manchester School, University of Manchester, vol. 78(6), pages 660-677, December.
    14. Jim Andreoni, "undated". "Do Government Subsidies Affect the Private Supply of Public Goods?," Papers _033, University of Michigan, Department of Economics.
    15. Kalashnikov, Vyacheslav & Kalashnykova, Nataliya & Rojas, Ramón Luévanos & Muí±os, Mario Méndez & Uranga, César & Rojas, Arnulfo Luévanos, 2008. "Numerical experimentation with a human migration model," European Journal of Operational Research, Elsevier, vol. 189(1), pages 208-229, August.
    16. Jean-Marie, Alain & Tidball, Mabel, 2006. "Adapting behaviors through a learning process," Journal of Economic Behavior & Organization, Elsevier, vol. 60(3), pages 399-422, July.

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