Evolutionary dynamics of a duopoly game with strategic delegation and isoelastic demand

Domenico de Giovanni, Fabio Lamantia

Research output: Contribution to journalArticlepeer-review

Abstract

We analyze a model of strategic delegation in Cournot competition with isoelastic demand. We first consider the static game and then we address an evolutionary version of it. We show that the result for which under quantity competition strategic delegation entails output expansion and higher consumers’ welfare than at the standard Cournot-Nash equilibrium is not necessarily true, but depends on the price elasticity of demand. Then, we study the main welfare implications of the model in order to understand whether the prevailing long-run industry configuration provides the highest welfare. We show that this may occur when both firms provide a mixed incentive and that, in this case, the model admits feasible trajectories the long-run configuration of which yields the highest welfare. Finally, we address the robustness of our results by means of an evolutionary model with heterogeneous players.

Original languageEnglish
Pages (from-to)877-903
Number of pages27
JournalJournal of Evolutionary Economics
Volume27
Issue number5
Early online date25 May 2017
DOIs
Publication statusPublished - Nov 2017

Keywords

  • Cartel stability
  • Evolutionary games
  • Isoelastic demand
  • Quantity competition
  • Strategic delegation

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