Dynamic Oligopoly and Price Stickiness

10.3386/w27536 ◽

2020 ◽

Author(s):

Olivier Wang ◽

Iván Werning

Keyword(s):

Price Stickiness ◽

Dynamic Oligopoly

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A Dynamic Oligopoly with Price Stickiness and Risk-Averse Agents

Italian Economic Journal ◽

10.1007/s40797-021-00153-4 ◽

2021 ◽

Author(s):

Edilio Valentini ◽

Paolo Vitale

Keyword(s):

Risk Aversion ◽

Continuous Time ◽

Infinite Horizon ◽

Sticky Prices ◽

Time Limit ◽

Price Stickiness ◽

Time Model ◽

Classical Dynamic ◽

Dynamic Oligopoly ◽

The Impact

AbstractIn this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. The continuous-time limit of our formulation nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Econometrica 55:1151–1164, 1987) and extends it by accommodating uncertainty and risk-aversion. We show that in the continuous-time limit of our infinite horizon formulation the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk-aversion collapses to Fershtman and Kamien’s analogue.

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A dynamic differential oligopoly game with sticky price and advertising

Kybernetes ◽

10.1108/k-02-2018-0067 ◽

2019 ◽

Vol 48 (3) ◽

pp. 586-611

Author(s):

Marjan Raoufinia ◽

Vahid Baradaran ◽

Reza Shahrjerdi

Keyword(s):

Closed Loop ◽

Open Loop ◽

Analytical Models ◽

Total Output ◽

Model Parameters ◽

Price Stickiness ◽

Content Type ◽

Oligopoly Model ◽

Dynamic Oligopoly ◽

Advertising Effort

PurposeThe purpose of this study is to analyze comparatively the properties of open-loop and closed-loop equilibria in a dynamic oligopoly model with price dynamics and reflexive behavior of market agents.Design/methodology/approachTo consider dynamic competitive markets, the authors focus on a differential game theory in oligopolistic structures, using analytical models to illustrate how advertising effort, good differentiation and price stickiness interact simultaneously in the open-loop and the closed-loop Nash equilibria. The comparative assessment of these equilibria obtains some significant results.FindingsAn optimization model that enriches the continuous time is presented. Under the open-loop and the closed-loop, Nash equilibrium showed an increase in the total output, advertising in price stickiness and promotional efficiency, while there was a decrease in product differentiation and advertising promotional efficiency. However, the open-loop equilibrium levels are larger than the closed-loop equilibrium. Under the closed-loop information, the long-run equilibrium was faster than the opened-loop in a dynamic oligopoly. The graphical illustration was used to present the behavior of the model parameters.Practical implicationsThis study helps managers to choose an appropriate price and advertising adjustment to maximize profit. The obtained results may help firms to make the smart decision and may provide managers the valuable tool for making decisions in the competitive market environments.Originality/valueThis is a first attempt to analyze a dynamic oligopoly in the differentiated market environment. It considers a joint action of the output and advertising in shaping the closed-loop and the open-loop equilibria with N competitors in a dynamic competitive setting.

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