Triumph over Your Rivals in Dynamic Oligopoly

Abstract

Challenging the conventional belief that sophistication in strategy is always better, it was found in W. Huang (2002a) that a price-taker who adopts the Cobweb strategy yields higher profits than those who adopt more sophisticated strategies. This study explores the possibility of improving further the relative profit advantage that the price-taker has over its counterparts through incorporating the growth-rate adjustment strategy. A linear heterogenous oligopoly model is used to illustrate the merits of such strategy in the case of disequilibrium. It is shown in theory and supported with numerical simulations that the adoption of growth-rate adjustment strategy together with price-taking strategy confers on the price-taker the stabilization power in a dynamically unstable market in addition to better relative performance in terms of major performance measures.