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Adjustment to Equilibrium after a Demand Shock: A Strategic Interaction View

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  • L. Lambertini
  • L. Marattin

Abstract

In this paper we verify the functioning of the standard neoclassical adjustment to equilibrium after a demand shock in a non-cooperative simultaneous Cournot duopoly with complete, symmetric and imperfect information. Our results show that in such a framework the adjustment to the long-run level of output by the entire industry or part of it is no longer guaranteed. We show that the size of the demand shock determines the nature and number of equilibria generated by strategic interaction, whereas the post-adjustment real wage level determines which equilibrium is actually obtained.

Suggested Citation

  • L. Lambertini & L. Marattin, 2014. "Adjustment to Equilibrium after a Demand Shock: A Strategic Interaction View," Working Papers wp952, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp952
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    References listed on IDEAS

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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