Dynamic Production and Pricing Model for Competing Firms:An Alternating-Move Approach

摘要

This paper studies the behavior of two firms producing similar non-perishable products over an infinite time horizon.The marginal production costs of both firms are random whose distributions are known. The firms adjust their productionand pricing levels based on the current production costs and the opponents' price. We use an alternating-movegame to model this problem and show that there exists a unique subgame perfect Nash equilibrium in production andpricing decisions. We provide a closed form solution for the firm's pricing policy.