File(s) under permanent embargo

Reason: This item is currently closed access.

Competition in a duopoly with sticky price and advertising

journal contribution
posted on 30.05.2006, 09:53 authored by Claudio Piga
This paper develops a differential duopolistic game where price is sticky and firms can invest in market-enlarging promotional activities which have a public good nature. One finding indicates that advertising, and not output as in Fershtman and Kamien (Econometrica 55 (1987) 1151–1164) is responsible for the higher stationary price found in the open loop equilibrium relative to the linear feedback one. That is, free-riding is more intense when firms play linear Markov feedback strategies. However, the collusive outcome can be approximated, and opportunism eliminated, if firms can engage in preplay negotiations where they select a nonlinear Markov perfect strategy for output and advertising. Achieving the collusive outcome requires (as in the Folk Theorem for infinitely repeated games) the discount rate to be sufficiently small.

History

School

  • Business and Economics

Department

  • Economics

Pages

329877 bytes

Citation

PIGA, C., 2000. Competition in a duopoly with sticky price and advertising. International Journal of Industrial Organization, 18, pp.595-614.

Publisher

© Elsevier

Publication date

2000

Notes

This is Closed Access. The article was published in the journal, International Journal of Industrial Organization [© Elsevier] and is available at: http://www.sciencedirect.com/science/article/pii/S0167718798000307

ISSN

0167-7187

Language

en

Usage metrics

Exports