A Generalized Framework for Endogenous Timing in Duopoly Games and an Application to Price-Quantity Competition

Zhu, Quantao; Wu, Xinwang; Sun, Laixiang

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.

Citation

Zhu, Q., Wu, X., & Sun, L. (2014). A Generalized Framework for Endogenous Timing in Duopoly Games and an Application to Price-Quantity Competition. Journal of Economics, 112(2), 137-164. https://doi.org/10.1007/s00712-013-0347-3

• Journal Article Type: Article
• Publication Date: Jun 1, 2014
• Deposit Date: Apr 12, 2013
• Journal: Journal of Economics
• Print ISSN: 0931-8658
• Electronic ISSN: 1617-7134
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 112
• Issue: 2
• Pages: 137-164
• DOI: https://doi.org/10.1007/s00712-013-0347-3
• Keywords: Duopoly Games, Endogenous Timing, Basic Competition Forms, Price-Quantity Competition
• Related Public URLs: http://link.springer.com/article/10.1007%2Fs00712-013-0347-3