Dynamic Oligopolies with Production Adjustment Costs

Single-product oligopolies, without product differentiation, are examined under the assumption that any increase in production levels has additional cost to the firms. Therefore, the best response of each firm depends on the current output of the rest of the industry and on the previous output of the firm. Two dynamic models are introduced. In the first case, the firms form adaptive expectations on the output of the rest of the industry and select the best response output levels and, in the second case, it is assumed that they adjust their output levels adaptively. Conditions are derived in both cases for the asymptotic stability of the equilibrium.