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Dynamic Duopoly with Inattentive Firms

  • Markus Reisinger
  • Ludwig Ressner
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    This paper analyzes an infinite horizon dynamic duopoly with stochastic demand in which firms face costs of absorbing and processing information. Our main result is that the structure of dates at which firms choose to absorb information differ starkly between price and quantity competition. Firms synchronize their actions under price competition whereas they plan sequentially and in an alternating manner under quantity competition. The reason is that under quantity competition the planning firm reduces the uncertainty in the residual demand curve of the inattentive firm which renders planning less attractive for that firm. The opposite holds true under price competition.

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    File URL: http://www.bgpe.de/texte/DP/058_ressner.pdf
    File Function: First version, 2008
    Download Restriction: no

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 058.

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    Length: 38 pages
    Date of creation: Jun 2008
    Date of revision:
    Handle: RePEc:bav:wpaper:058_ressner
    Contact details of provider: Web page: http://www.bgpe.de/

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