Imitation by price and quantity setting firms in a differentiated market

A. Khan*, R.J.A.P. Peeters

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market-clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium outcome of the underlying stage game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a "mutually non-aggressive" outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market-clearing always results endogenously.

data source: no data
Original languageEnglish
Pages (from-to)28-36
Number of pages9
JournalJournal of Economic Dynamics & Control
Volume53
DOIs
Publication statusPublished - Apr 2015

Keywords

  • Oligopoly
  • Imitation
  • Evolution
  • ASYMMETRIC OLIGOPOLY
  • COMPETITION
  • EVOLUTION
  • NUMBER
  • EQUILIBRIUM
  • INFORMATION
  • INCREASE
  • SELLERS
  • GOODS
  • MODEL

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