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On the Feedback Solutions of Differential Oligopoly Games with Hyperbolic Demand Curve and Capacity Accumulation

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  • L. Lambertini
  • A. Palestini

Abstract

We characterise the subgame perfect equilibrium of a differential market game with hyperbolic inverse demand where firms are quantity-setters and accumulate capacity over time la Ramsey. The related Hamilton-Jacobi-Bellman are solved in closed form both on infinite and on finite horizon setups and the optimal strategies are determined. Then, we analyse the feasibility of horizontal mergers in both static and dynamic settings, and find appropriate conditions for their profitability under both circumstances. Static profitability of a merger implies dynamic profitability of the same merger. It appears that such a demand structure makes mergers more likely to occur than they would on the basis of the standard linear inverse demand.

Suggested Citation

  • L. Lambertini & A. Palestini, 2013. "On the Feedback Solutions of Differential Oligopoly Games with Hyperbolic Demand Curve and Capacity Accumulation," Working Papers wp862, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp862
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    References listed on IDEAS

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    Cited by:

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    2. Aleksandr Tarasyev & Ilya Krivenko & Maria Pecherkina & Tatiana Kashina, 2016. "Simulation of the Investment Attractiveness of Science in a Region," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 303-314.
    3. Stefano Colombo, 2016. "Location choices with a non-linear demand function," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 215-226, March.

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    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

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