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Evolutionary dynamics of a duopoly game with strategic delegation and isoelastic demand

Author

Listed:
  • Domenico De Giovanni

    () (University of Calabria)

  • Fabio Lamantia

    () (University of Calabria
    University of Manchester)

Abstract

Abstract We analyze a model of strategic delegation in Cournot competition with isoelastic demand. We first consider the static game and then we address an evolutionary version of it. We show that the result for which under quantity competition strategic delegation entails output expansion and higher consumers’ welfare than at the standard Cournot-Nash equilibrium is not necessarily true, but depends on the price elasticity of demand. Then, we study the main welfare implications of the model in order to understand whether the prevailing long-run industry configuration provides the highest welfare. We show that this may occur when both firms provide a mixed incentive and that, in this case, the model admits feasible trajectories the long-run configuration of which yields the highest welfare. Finally, we address the robustness of our results by means of an evolutionary model with heterogeneous players.

Suggested Citation

  • Domenico De Giovanni & Fabio Lamantia, 2017. "Evolutionary dynamics of a duopoly game with strategic delegation and isoelastic demand," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 877-903, November.
  • Handle: RePEc:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0501-0
    DOI: 10.1007/s00191-017-0501-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Strategic delegation; Evolutionary games; Quantity competition; Isoelastic demand; Cartel stability;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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