Two-Firm Scenario

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Searching for Several Equilibria

Note: in order to run the simulation referred to in this slide, go here, to the Java Applet version. You will be directed to download the latest version of the Java plug-in.

In the previous slide, the reason the two firms always found the same equilibrium was that the initial outputs and Equilibrium Modes were the same every time. Other equilibria, however, exist in the two-firm scenario, and it is possible to find them by setting the initial outputs and Equilibrium Modes to different values.

The graphic to the left demonstrates how modifying the initial conditions can lead to a different equilibrium. Press the "A" button to set up for the equilibrium found in the previous slide. Press "B" to set up for a different equilibrium - a monopoly with only one of the firms achieving non-zero output. After initializing with either of these buttons, press "Go" to see what outputs the firms tend to. It turns out that the output of the monopoly in case B is 18.15 under the chosen model parameters.

As in the previous slide, the graph on the lower left shows the progress of firms' outputs as the simulator searches for a FECE.

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