We study the local stability properties of a nonlinear Bertrand duopoly with vertical differentiation and heterogeneous players with both covered and uncovered markets. In the former case, the unique pure strategy Nash equilibrium can undergo a flip bifurcation when the extent of consumer’s heterogeneity increases. In the latter, the quality differential plays a preeminent role in determining stability of prices over time. Numerical evidence is provided to show the occurrence of endogenous fluctuations.
Stability analysis in a Bertrand duopoly with different product quality and heterogeneous expectations
GORI, LUCA
2012-01-01
Abstract
We study the local stability properties of a nonlinear Bertrand duopoly with vertical differentiation and heterogeneous players with both covered and uncovered markets. In the former case, the unique pure strategy Nash equilibrium can undergo a flip bifurcation when the extent of consumer’s heterogeneity increases. In the latter, the quality differential plays a preeminent role in determining stability of prices over time. Numerical evidence is provided to show the occurrence of endogenous fluctuations.
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