Imitation by price and quantity setting firms in a differentiated market

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

Research output: Working paperProfessional

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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 of the underlying 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.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 1 Jan 2013

Publication series

SeriesGSBE Research Memoranda
Number022

Research Output

Imitation by price and quantity setting firms in a differentiated market

Khan, A. & Peeters, R. J. A. P., Apr 2015, In : Journal of Economic Dynamics & Control. 53, p. 28-36 9 p.

Research output: Contribution to journalArticleAcademicpeer-review

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Khan, A., & Peeters, R. J. A. P. (2013). Imitation by price and quantity setting firms in a differentiated market. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 022 https://doi.org/10.26481/umagsb.2013022