Non-Cooperative Duopoly Games under Uncertainty of Discount Rates

Abstract

There is a vast literature on non-cooperative oligopoly games. In this literature, however, the discount rates have been considered as fixed. Consequently, this chapter aims at understanding the effects of uncertainty over future discount rates on collusive behavior. Results indicate that the more uncertain the future discount rates are, the more collusive firms become. A higher average discount rate, on the other hand, is anti-collusive. With this kind of information at hand, policies that are targeted at reducing the variability in interest rates can promote competitive behavior by discouraging firms to behave collusively. Thus, the results can be of use for competition authorities and governmental bodies.

Keywords: Non-cooperative duopoly games, Uncertainty, Discount rates.

Cite as