Quantity competition in a differentiated duopoly

In this paper, we consider a Stackelberg duopoly competition with differentiated goods, linear and symmetric demand and with unknown costs. In our model, the two firms play a non-cooperative game with two stages: in a first stage, firm F 1 chooses the quantity, q 1, that is going to produce; in the second stage, firm F 2 observes the quantity q 1 produced by firm F 1 and chooses its own quantity q 2. Firms choose their output levels in order to maximise their profits. We suppose that each firm has two different technologies, and uses one of them following a certain probability distribution. The use of either one or the other technology affects the unitary production cost. We show that there is exactly one perfect Bayesian equilibrium for this game. We analyse the variations of the expected profits with the parameters of the model, namely with the parameters of the probability distributions, and with the parameters of the demand and differentiation.

Strategic trade policy and signaling costs with differentiated goods

We consider a trade policy model, where the costs of the home firm are private information but can be signaled through the output levels of the firm to a foreign competitor and a home policymaker. We compute the separating equilibrium and the Bayesian Nash equilibrium, and we compare the subsidies, firms’ expected profits and home government’s welfare in both equilibria, for different values of the own price effect parameter.