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On Adjustment Costs and the Stability of Equilibria

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  • W. Bentley MacLeod

Abstract

This paper uses local game theory to introduce a general framework for disequilibrium dynamics based on adjustment costs. In the context of oligopoly, the analysis shows that the existence of adjustment costs will result in a unique equilibrium where market shares are inversely proportional to these costs. This paper also introduces two new solution concepts for n-person normal form games.

Suggested Citation

  • W. Bentley MacLeod, 1984. "On Adjustment Costs and the Stability of Equilibria," Working Paper 554, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:554
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    Cited by:

    1. Zhao, Jijun & Szidarovszky, Ferenc, 2008. "N-firm oligopolies with production adjustment costs: Best responses and equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 87-99, October.
    2. Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1990. "A monopoly union model of wage determination with taxes and endogenous capital stock : an empirical application to the finnish manufacturing industry," Research Discussion Papers 24/1990, Bank of Finland.
    3. repec:zbw:bofrdp:1990_024 is not listed on IDEAS
    4. Akio Matsumoto & Ugo Merlone & Ferenc Szidarovszky, 2017. "Extended oligopolies with contingent workforce," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 989-1005, November.
    5. Merlone, Ugo & Szidarovszky, Ferenc, 2015. "Dynamic oligopolies with contingent workforce and investment costs," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 108(C), pages 144-154.
    6. Merlone, Ugo & Szidarovszky, Ferenc, 2022. "Cournot oligopoly when the competitors operate under capital constraints," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).

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