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Decentralized Dynamics in Duopoly with Pareto Optimal Outcomes

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  • Leonard Shapiro

Abstract

This paper describes a particular pair of strategies to be followed by duopolists. At time zero duopolists are producing at a Cournot equilibrium. By following these strategies, the duopolists converge to a Pareto optimum with respect to their profits. The structure of these dynamic strategies is based on managerial considerations. The strategies are self-reinforcing in that profits increase for both producers at all times. They are centralized in that neither duopolist knows directly about the other's cost function or profits or production level.

Suggested Citation

  • Leonard Shapiro, 1980. "Decentralized Dynamics in Duopoly with Pareto Optimal Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 730-744, Autumn.
    • Handle: RePEc:rje:bellje:v:11:y:1980:i:autumn:p:730-744
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    Cited by:

    1. Charles F. Mason, 2018. "An Experimental Analysis of the Complications in Colluding when Firms are Asymmetric," CESifo Working Paper Series 7047, CESifo.
    2. Charles F. Mason, 2022. "Cooperation in Dynamic Games with Asymmetric Players: The Role of Social Preferences," Dynamic Games and Applications, Springer, vol. 12(3), pages 977-995, September.
    3. Mason, Charles F. & Phillips, Owen R., 2001. "Dynamic learning in a two-person experimental game," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1305-1344, September.
    4. Charles F. Mason & Owen R. Phillips, 2016. "Imminent Entry and the Transition to Multimarket Rivalry in a Laboratory Setting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(4), pages 1018-1039, December.
    5. Michael P. Leidy & Robert W. Staiger, 1985. "Economic Issues and Methodology in Arms Race Analysis," Journal of Conflict Resolution, Peace Science Society (International), vol. 29(3), pages 503-530, September.
    6. Mason, Charles F. & Phillips, Owen R., 2000. "Vertical integration and collusive incentives: an experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 471-496, April.

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