Abstract
In this paper, we examine a sub-game perfect equilibrium of a two stage game in an oligopoly in which n ( n≥2) firms produce differentiated (substitutable) goods. In the first stage of the two stage game, the firms choose their strategic variable, price or quantity. In the second stage, they choose the levels of their strategic variables. We will show the following results. A quantity strategy is the best response for each firm when all other firms choose a price strategy. Thus, the Bertrand equilibrium does not constitute a sub-game perfect equilibrium of the two stage game. A quantity strategy is also the best response for each firm when all other firms choose a quantity strategy. Therefore, the Cournot equilibrium constitutes a sub-game perfect equilibrium.
Published Version
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