Bertrand and Cournot Mean Field Games

Bertrand and Cournot Mean Field Games We study how continuous time Bertrand and Cournot competitions, in which firms producing similar goods compete with one another by setting prices or quantities respectively, can be analyzed as continuum dynamic mean field games. Interactions are of mean field type in the sense that the demand faced by a producer is affected by the others through their average price or quantity. Motivated by energy or consumer goods markets, we consider the setting of a dynamic game with uncertain market demand, and under the constraint of finite supplies (or exhaustible resources). The continuum game is characterized by a coupled system of partial differential equations: a backward Hamilton–Jacobi–Bellman partial differential equation (PDE) for the value function, and a forward Kolmogorov PDE for the density of players. Asymptotic approximation enables us to deduce certain qualitative features of the game in the limit of small competition. The equilibrium of the game is further studied using numerical solutions, which become very tractable by considering the tail distribution function instead of the density itself. This also allows us to consider Dirac delta distributions to use the continuum game to mimic finite $$N$$ N -player nonzero-sum differential games, the advantage being having to deal with two coupled PDEs instead of $$N$$ N . We find that, in accordance with the two-player game, a large degree of competitive interaction causes firms to slow down production. The continuum system can therefore be used qualitative as an approximation to even small player dynamic games. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematics and Optimization Springer Journals

Bertrand and Cournot Mean Field Games

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Mathematics; Calculus of Variations and Optimal Control; Optimization; Systems Theory, Control; Theoretical, Mathematical and Computational Physics; Mathematical Methods in Physics; Numerical and Computational Physics
ISSN
0095-4616
eISSN
1432-0606
D.O.I.
10.1007/s00245-014-9269-x
Publisher site
See Article on Publisher Site

Abstract

We study how continuous time Bertrand and Cournot competitions, in which firms producing similar goods compete with one another by setting prices or quantities respectively, can be analyzed as continuum dynamic mean field games. Interactions are of mean field type in the sense that the demand faced by a producer is affected by the others through their average price or quantity. Motivated by energy or consumer goods markets, we consider the setting of a dynamic game with uncertain market demand, and under the constraint of finite supplies (or exhaustible resources). The continuum game is characterized by a coupled system of partial differential equations: a backward Hamilton–Jacobi–Bellman partial differential equation (PDE) for the value function, and a forward Kolmogorov PDE for the density of players. Asymptotic approximation enables us to deduce certain qualitative features of the game in the limit of small competition. The equilibrium of the game is further studied using numerical solutions, which become very tractable by considering the tail distribution function instead of the density itself. This also allows us to consider Dirac delta distributions to use the continuum game to mimic finite $$N$$ N -player nonzero-sum differential games, the advantage being having to deal with two coupled PDEs instead of $$N$$ N . We find that, in accordance with the two-player game, a large degree of competitive interaction causes firms to slow down production. The continuum system can therefore be used qualitative as an approximation to even small player dynamic games.

Journal

Applied Mathematics and OptimizationSpringer Journals

Published: Jun 1, 2015

References

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