On the dynamic duopoly model of non-price competition

Abstract

In this paper, we consider a dynamic duopoly setting where each firm attempts to win the market by supplying more of its product brand. We delve into the duopoly setting using the Richardson arms rivalry model to examine the race between two non-collusive firms. We prove that: under the Cournot hypothesis, the optimal output of an incumbent firm is not influenced by the marginal valuation of the product brand of its rival if all of its mass produced items meet acceptable standard at all times. We give some useful insights into the optimal equilibrium product levels as well as the necessary conditions for a firm to be dominant under the Cournot view. We prescribe and illustrate the use of restricted regression approach as a way of estimating the structural parameters of the model.