Adjustment to Equilibrium after a Demand Shock: A Strategic Interaction View

Quaderni - Working Paper DSE No. 952

29 Pages Posted: 1 Jul 2014

See all articles by Luca Lambertini

Luca Lambertini

University of Bologna - Department of Economics

Luigi Marattin

University of Bologna - Department of Economics

Date Written: June 27, 2014

Abstract

In this paper we verify the functioning of the standard neoclassical adjustment to equilibrium after a demand shock in a non-cooperative simultaneous Cournot duopoly with complete, symmetric and imperfect information. Our results show that in such a framework the adjustment to the long-run level of output by the entire industry or part of it is no longer guaranteed. We show that the size of the demand shock determines the nature and number of equilibria generated by strategic interaction, whereas the post-adjustment real wage level determines which equilibrium is actually obtained.

Keywords: Cournot duopoly, wage adjustment, demand shock

JEL Classification: D43, E30

Suggested Citation

Lambertini, Luca and Marattin, Luigi, Adjustment to Equilibrium after a Demand Shock: A Strategic Interaction View (June 27, 2014). Quaderni - Working Paper DSE No. 952, Available at SSRN: https://ssrn.com/abstract=2460710 or http://dx.doi.org/10.2139/ssrn.2460710

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Luigi Marattin

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, Bologna 40125
Italy
0512092606 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
51
Abstract Views
547
Rank
693,387
PlumX Metrics