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QUANTITY VERSUS PRICE IN A HOMOGENEOUS PRODUCT DUOPOLY *
Author(s) -
Dastidar Krishnendu Ghosh
Publication year - 1996
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1996.tb00625.x
Subject(s) - duopoly , nash equilibrium , economics , homogeneous , microeconomics , mathematical economics , product (mathematics) , correlated equilibrium , epsilon equilibrium , product differentiation , symmetric equilibrium , order (exchange) , strategy , best response , game theory , equilibrium selection , repeated game , mathematics , cournot competition , geometry , finance , combinatorics
ABSTRACT In a simple homogeneous product setting, the paper looks at the debate on whether firms should choose quantity or price as their strategic variable. It examines a two‐stage game between firms with symmetric costs in which the firms choose the strategic mode of operation in the first period and then, in the second period, price or output are chosen simultaneously according to the mode chosen in the first stage. In this game it is possible to have two Nash equilibria where either both play in quantities or both play in prices. One firm choosing price and the other quantity can never be a Nash equilibrium in the two‐stage game. Both choosing quantity is always a Nash equilibrium. Both choosing prices may be a Nash equilibrium only in some situations: the structure of the cost functions decides this issue.