The stability and duality of dynamic Cournot and Bertrand duopoly model with comprehensive preference
Abstract In this paper, a Cournot model and its dual Bertrand model where firms have comprehensive preferences are developed. The preference was proposed by Bowles (2004) based on the results of Rabin (1993) and Lebine (1998). Comparable static method is used to illustrate the impact of parameters on equilibrium. Three scenarios are classified by preference parameter: completely cooperative, hostile to each other and general Cournot or Bertrand model. In each situation, Cournot model and its dual model present different chaos phenomenon which have various and abundant strange attractors, while the shapes of the stability regions are similar in the same situation. In the static setting, the local stability analysis of equilibrium gives the bounded region of quantity or price. The one-dimensional Logistic mapping is applied to studying the dynamics of the models on invariant axes. The critical curves classify different regions according to the number of preimages (q1, q2) or (p1, p2). Besides, simulations give more intuitive results: the cycle attractor, chaotic attractor and the basin of attraction with “holes” are presented. The article also provides new findings that under the assumption of comprehensive preference, the Cournot model with substitutes (complements) and the Bertrand model with complements (substitutes) are still duality models in the dynamic settings.