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Cournot model with investments to change the market size
Author(s) -
Pinto Alberto A.,
Ferreira Fernanda A.,
Ferreira Miguel,
Oliveira Bruno M.P.M.
Publication year - 2007
Publication title -
pamm
Language(s) - English
Resource type - Journals
ISSN - 1617-7061
DOI - 10.1002/pamm.200700634
Subject(s) - cournot competition , subgame perfect equilibrium , economics , profit (economics) , subgame , mathematical economics , microeconomics , investment (military) , nash equilibrium , market size , first mover advantage , best response , industrial organization , epsilon equilibrium , commerce , politics , political science , law
We present a new deterministic dynamical model on the market size of Cournot competitions, based on Nash equilibria of R&D investment strategies to increase the size of the market of the firms at every period of the game. We compute the unique Nash equilibrium for the second subgame and the profit functions for both firms. Adding uncertainty to the R&D investment strategies, we get a new stochastic dynamical model and we analyse the importance of the uncertainty to reverse the initial advantage of one firm with respect to the other. (© 2008 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)