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A generalized framework for endogenous timing in duopoly games and an application to price-quantity competition

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  • Quan-tao Zhu
  • Xin-wang Wu
  • Laixiang Sun

Abstract

This paper extends the analysis of duopoly market by distinguishing two types of competition: (i) the basic form of competition where each firm is unrestricted in its choice of price and quantity and (ii) the non-basic form of competition where firms’ strategic choices over price and quantity are limited a priori. Our analysis focuses on the former rather than the latter. Under a very general setting of concave industrial revenue and asymmetric convex costs, we show that each firm typically makes more profit in the subgame perfect Nash equilibrium (SPNE) of the leader-follower price-quantity competition, one of the basic competition forms, than in the SPNE of the leader-follower price competition and that each firm always makes more profit under simultaneous move price-quantity competition than under simultaneous move price competition. We establish a generalized framework for endogenous timing in duopoly games which is capable of embodying and overcoming the inconsistency across the existing three frameworks in the field. We highlight the advantages of a 3-period general framework. Copyright Springer-Verlag Wien 2014

Suggested Citation

  • Quan-tao Zhu & Xin-wang Wu & Laixiang Sun, 2014. "A generalized framework for endogenous timing in duopoly games and an application to price-quantity competition," Journal of Economics, Springer, vol. 112(2), pages 137-164, June.
    • Handle: RePEc:kap:jeczfn:v:112:y:2014:i:2:p:137-164
    DOI: 10.1007/s00712-013-0347-3
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    Cited by:

    1. Heywood, John S. & Li, Dongyang & Ye, Guangliang, 2023. "Private provision of price excludable public goods by rivals," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 291-307.

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    More about this item

    Keywords

    Duopoly games; Endogenous timing; Basic competition forms; Price-quantity competition; C72; D43; L00; L13; L30;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L00 - Industrial Organization - - General - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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