Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, February 28, 2012

Game complete analysis of symmetric Cournot duopoly

Posted by D. Daniel Sokol

David Carfe (University of California at Riverside) and Emanuele Perrone (University of Messina) offer a Game complete analysis of symmetric Cournot duopoly.

ABSTRACT: In this paper we apply the Complete Analysis of Differentiable Games to the classic Cournot Duopoly (1838), classic oligopolistic market in which there are two enterprises producing the same commodity and selling it in the same market. In this classic model, in a competitive background, the two enterprises employ, as possible strategies, the quantities of the commodity produced. The main solutions proposed in literature for this kind of duopoly are the Nash equilibrium and the Collusive Optimum, without any subsequent critical exam about these two kinds of solutions. The absence of any critical quantitative analysis is due to the relevant lack of knowledge regarding the set of all possible outcomes of this strategic interaction. On the contrary, by considering the Cournot Duopoly as a differentiable game (a game with differentiable payoff functions) and studying it by the new topological methodologies introduced by D. Carfì, we obtain an exhaustive and complete vision of the entire payoff space of the Cournot game (this also in asymmetric cases with the help of computers) and this total view allows us to analyze critically the classic solutions and to find other ways of action to select Pareto strategies. In order to illustrate the application of this topological methodology to the considered infinite game, several compromise decisions are considered, and we show how the complete study gives a real extremely extended comprehension of the classic model.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/02/game-complete-analysis-of-symmetric-cournot-duopoly-.html

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