PRICE AND QUANTITY COMPETITION IN DYNAMIC OLIGOPOLIES WITH PRODUCT DIFFERENTIATION

Abstract

This is a continuation of the earlier work of Matsumoto and Szidarovszky (2010A) that compares Bertrand and Cournot
equilibria in a differentiatedn -firm oligopoly from static and dynamic points of view. It is, among others, found that
both equilibria can be locally unstable if the firms naively forms expectations and the number of the firms are strictly
more than three. The main purpose of this paper provides economic circumstances under which such unstable equilibria
can be stabilized. Three main results have been shown. First, the equilibria can be locally stable if the dynamic system
with adaptive expectations or the dynamic system with adaptive adjustments is adopted. Second, these two dynamic
systems are equivalent as far as the local stability is concerned. Third, the total output under the dynamic system with
naive expectations exhibits a period-2 cycle.