Sequential Moves and Tacit Collusion : Reaction-Function Cycles in a Finite Pricing

@inproceedings{Wallner1999SequentialMA,
  title={Sequential Moves and Tacit Collusion : Reaction-Function Cycles in a Finite Pricing},
  author={Klaus Wallner},
  year={1999}
}
This paper analyzes a finite horizon, sequential move pricing duopoly, restricting attention to Markov strategies. The solution yields stationary patterns, independent of initial conditions, where the reaction-functions follow cycles of three periods. The market price never settles down, and is at all times strictly above marginal cost. Long-run average industry profits are approximately 5 6 of the monopoly level. These results demonstrate that neither a long horizon nor non-Markovian… CONTINUE READING

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