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Cournot oligopoly: a discrete time sticky-prices paradox

Author

Listed:
  • Pierre Bernhard

    (MACBES Team, INRIA, Université de Côte d'Azur, France)

  • Marc Deschamps

    (Université de Franche-Comté, CRESE, UR3190, F-25000 Besançon, France)

Abstract

This article studies the issue of sticky prices in the context of a dynamic Cournot oligopoly model in discrete time with n asymmetric firms, and with costs and demand linear. We recover the somewhat surprising fact of the related continuous time literature that the asymptotic price is lower than the price of the repeated game. But contrary to the continuous time case, in discrete time we find 1/ that the limit at vanishing viscosity coincides with the non-sticky case, and, more surprisingly 2/ that the equilibrium price trajectory oscillates around the asymptotic price.

Suggested Citation

  • Pierre Bernhard & Marc Deschamps, 2024. "Cournot oligopoly: a discrete time sticky-prices paradox," Working Papers 2024-01, CRESE.
    • Handle: RePEc:crb:wpaper:2024-01
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    References listed on IDEAS

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    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 529-538.
    2. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June.
    3. De Vroey,Michel, 2016. "A History of Macroeconomics from Keynes to Lucas and Beyond," Cambridge Books, Cambridge University Press, number 9781107584945, January.
    4. Driskill, Robert A. & McCafferty, Stephen, 1989. "Dynamic duopoly with adjustment costs: A differential game approach," Journal of Economic Theory, Elsevier, vol. 49(2), pages 324-338, December.
    5. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050, Elsevier.
    6. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-1164, September.
    7. David Romer, 1993. "The New Keynesian Synthesis," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 5-22, Winter.
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    Cited by:

    1. Martino Bardi & Fabio Camilli & Francisco J. Silva, 2025. "Preface: Special Issue of Dynamic Games and Applications in Memory of Maurizio Falcone," Dynamic Games and Applications, Springer, vol. 15(2), pages 363-370, May.

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    Keywords

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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