This chapter deals with two issues in dynamic oligopoly theory and industrial organization. The first concerns a duopolistic market in which producers determine their output rates but the market price does not adjust instantaneously to the price indicated by the demand function (as it is supposed to do in the static Cournot model of chapter 2). The market price is sticky. We consider two firms that play a linear quadratic differential game (cf. chapter 7). The second issue comes from industrial organization and is that of research and development. R&D activities are aimed at developing new technologies, production processes, or products. Related problems concern the diffusion and adoption of innovations and the transfer of new technologies. In all these areas, game theoretic models have been proposed. In this chapter we confine our interest to a class of R&D differential games where the date of successful completion of the innovation by one of the oligopolists is a random variable with a probability distribution that is known to depend on the oligopolists' R&D efforts. First, we analyse a pure R&D game which subsequently is modified to include the extraction of a nonrenewable resource (cf. chapter 12). In this modification, an importer of a nonrenewable resource (e.g., oil) seeks to develop a new technology the output of which can be substituted for imports of the nonrenewable resource.

Dynamic duopoly with sticky prices

We consider dynamic duopolistic competition in a market for a homogeneous good. A key feature of the problem is that the market price does not adjust instantaneously to the price indicated by the demand function.