Development of a dynamic game theory model for analyzing competition in the oligopoly markets (Feedback Approach)

Abstract

Privatization has led to the formation dynamic competition in markets, such as airline service providers with a limited number of suppliers and a large number of customers (oligopoly markets). Suppliers of goods and services in these markets are considering the behavior of competitors to determine the amount of products and advertisements in order to maximize their benefits. This paper investigates a differential oligopoly game model under feedback structures. By applying mathematical validation of the optimal levels of production (supply) and advertising cost, the proposed model shows that parameters such as sticky price, substitutability among goods and advertising promotional efficiency on supply and advertising are effective in achieving sustainable equilibrium in such markets. The results of simulations show that in the feedback structures with increasing sticky prices, the optimal supply and promotions are upward. But with the increase in the degree of replacement of a product or service in the market, the optimal amount of supply and advertising is decreasing, as well as the reduction of advertising efficiency, the financial burden of advertising activities that in order to create a level of equilibrium in the market, the amount of optimal supply and advertising has a decreasing trend.

Keywords

• oligopoly
• dynamic game theory
• competition
• nash equilibrium
• feedback strategy