Title: Study on the concession and damping equilibrium of duopoly strategic output based on bounded rationality and knowledge

Authors: Zhigeng Fang, Sifeng Liu, Robin G. Qiu, Hongxing Shi, Aiqing Ruan

Addresses: School of Economics and Management, Nanjing University of Aeronautics and Astronautics (NUAA), Nanjing, PR China. ' School of Economics and Management, Nanjing University of Aeronautics and Astronautics (NUAA), Nanjing, PR China. ' Department of Information Science, The Pennsylvania State University, Malvern, PA 19355, USA ' School of Economics and Management, Nanjing University of Aeronautics and Astronautics (NUAA), Nanjing, PR China. ' School of Economics and Management, Nanjing University of Aeronautics and Astronautics (NUAA), Nanjing, PR China

Abstract: The fatal weakness of the classical Cournot oligopoly model and current output-decision-making models is the supposition that player always pursues the maximum of present interest. This paper establishes some new hypotheses, including goal supposition, time-order assumption, bounded rationality and finite knowledge hypothesis, and constructs a generic model for realistic decision-making situations. The model should better fit into real strategic decision-making process between the leader and follower oligopolies (i.e. companies or players). Moreover, the arithmetic method, natures and characteristics of output decision-making are well studied in this research. This research gives and proves ten important propositions and four relevant deductions. The conceptions of damping loss and total damping cost of a completely dominated marketplace by the leader oligopoly are proposed; relevant algorithms and examples are also provided.

Keywords: duopoly; bounded rationality; finite knowledge; strategy output decisions; strategic decision making; damping equilibrium; concession equilibrium; goal supposition; time-order assumption; modelling; leader oligopoly.

DOI: 10.1504/IJSOI.2008.021342

International Journal of Services Operations and Informatics, 2008 Vol.3 No.3/4, pp.318 - 339

Published online: 19 Nov 2008 *

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