On the Feedback Solutions of Differential Oligopoly Games with Hyperbolic Demand Curve and Capacity Accumulation

Lambertini, Luca ; Palestini, Arsen (2013) On the Feedback Solutions of Differential Oligopoly Games with Hyperbolic Demand Curve and Capacity Accumulation. Bologna: Dipartimento di Scienze economiche DSE, p. 28. DOI 10.6092/unibo/amsacta/3906. In: Quaderni - Working Paper DSE (862). ISSN 2282-6483.
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Abstract

We characterise the subgame perfect equilibrium of a differential market game with hyperbolic inverse demand where firms are quantity-setters and accumulate capacity over time à la Ramsey. The related Hamilton-Jacobi-Bellman are solved in closed form both on infinite and on finite horizon setups and the optimal strategies are determined. Then, we analyse the feasibility of horizontal mergers in both static and dynamic settings, and find appropriate conditions for their profitability under both circumstances. Static profitability of a merger implies dynamic profitability of the same merger. It appears that such a demand structure makes mergers more likely to occur than they would on the basis of the standard linear inverse demand.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Lambertini, Luca
Palestini, Arsen
Keywords
capacity, differential game, Markov-perfect equilibrium, Hamilton-Jacobi-Bellman equation, horizontal mergers
Subjects
ISSN
2282-6483
DOI
Deposit date
12 Dec 2013 14:09
Last modified
19 Feb 2014 08:51
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