Ted To

Intertemporal Non-separability and Dynamic Oligopoly

Curtis Eberwein and Ted To

We construct a framework for modeling dynamic Cournot oligopoly. We consider models where utility maximizing consumers give rise to demand functions that depend on current and prior period prices. Future demand depends on the current price and consumers and firms must take this into account when making their decisions. Focusing on quadratic, dynamic indirect utility functions, we characterize the unique Markov perfect equilibrium in linear strategies. We then demonstrate the applicability of our framework through a series of practical examples.

JEL codes: C73, D21, D43