A FURTHER COMPARISON OF SOME MODELS OF DUOPOLY,
Abstract
The author attempts to present an exhaustive examination of the models that can be constructed by considering price and/or quantity at the strategic variables. These included the Cournot, Edgeworth and Bertrand cases as well as two further models reflecting the effect of inventory costs and penalties for failure to supply. Each model had a different noncooperative solution. The difference between Bertrand and Edgeworth hinged upon capacity conditions. Given limited capacity the price, price-quantity and stock penalty models all gave rise to an instability manifested by the existence of the Edgeworth cycle (which is of the same length for both the price and price-quantity models) and the somewhat different 'stockout cycles' when the stock penalty is sufficiently low in the stock penalty model. It is of interest to note that when the stockout penalty is large the resultant equilibria yield higher payoffs to the firms than they would obtain noncooperatively without the penalty. One may regard the penalty as providing an extra threat available to help enforce the equilibrium. The power of competitive price-cutting becomes so great that neither wishes to risk using the weapon too much.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 09, 1967
- Accession Number
- AD0647790
Entities
People
- Martin Shubik
Organizations
- Yale University