Monday, July 27, 2015

Price-Quantity Competition of Farsighted Firms: Toughness vs. Collusion

Marina S. Sandomirskaia (National Research University Higher School of Economics) describes Price-Quantity Competition of Farsighted Firms: Toughness vs. Collusion.

ABSTRACT: The paper examines an interaction of boundedly rational firms that are able to calculate their gains after reaction of an opponent to their own deviations from the current strategy. We consider an equilibrium concept that we call a Nash-2 equilibrium. We discuss the problem of existence and possible multiplicity of such equilibria, relation to infinite rationality approach of folk theorem and security considerations of equilibrium in secure strategies. For a number of models (Bertrand with homogeneous and heterogeneous product, Cournot, Tullock competition) the Nash-2 equilibrium sets are obtained and considered as tacit collusion or strong competition in dependence of additional security considerations

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