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arXiv:1001.2831 · Chinese Physics Letters

Quantum Model of Bertrand Duopoly

Salman Khan, Muhammad Asif Ramzan, M.K.R. Khan

Published Aug 1, 2010• 38 citations
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Abstract

We present a quantum model of Bertrand duopoly and study the entanglement behavior on the profit functions of the firms. Using the concept of optimal response of each firm to the price of the opponent, we find only one Nash equilibirum point for the maximally entangled initial state. The presence of quantum entanglement in the initial state gives payoffs higher to the firms than the classical payoffs at the Nash equilibrium. As a result, the dilemma-like situation in the classical game is resolved.

DOI
10.1088/0256-307x/27/8/080302

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We present a quantum model of Bertrand duopoly and study the entanglement behavior on the profit functions of the firms. Using the concept of optimal response of each firm to the price of the opponent, we find only one Nash equilibirum point for the maximally entangled initial state. The presence of quantum entanglement in the initial state gives payoffs higher to the firms than the classical payoffs at the Nash equilibrium. As a result, the dilemma-like situation in the classical game is resolved.
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The development of quantum information theory based on quantum entangled states is advancing rapidly and has promoted the emergence of quantum game theory. Quantum game theory is quantum information processing applied to classical games, which solves problems that classical games cannot solve. This paper explores the quantum Cournot-Bertrand game model of two firms in a duopoly market with bounded rationality and product substitutability. The first and second firms choose production output and sales price as their decision variables, respectively. We first define the quantum Cournot-Bertrand dynamical system and study the existence and locally stable conditions of equilibrium points. Then we explore bifurcation conditions and bifurcation types. Finally, we do the bifurcation analysis and explore the impacts of the model parameters as the potential market size of products, the two firms' linear marginal cost, the players' speed of strategy adjustment, the product substitution index, and the quantum entanglement degree on the Nash equilibrium stability and bifurcation using numerical analysis and simulation, and provide economic explanations for the results.
Abstract The properties of the Cournot model based on the most general entanglement operator containing quadratic expressions which is symmetric with respect to the exchange of players are considered. The degree of entanglement of games dependent on one and two squeezing parameters and their payoff values in Nash equilibrium are compared. The analysis showed that the relationship between the degree of entanglement of the initial state of the game and the payoff values in Nash equilibrium is ambiguous. The phase values included in the entanglement operator have a strong influence on the final outcome of the game. In a quantum duopoly based on the initial state of a game that depends on one squeezing parameter, the maximum possible payoff in Nash equilibrium cannot be reached when the value of the phase parameter is greater than zero, in contrast with a game that depends on two parameters.
A quantized version of the prisoner’s dilemma game based on the Marinatto–Weber quantization scheme is introduced. A four-qubit-basis initial entangled quantum state is assumed. Two domains for Nash equilibria are observed in terms of the degree of entanglement of the game. Each Nash equilibrium point is found to be Pareto optimal in its corresponding domain. Therefore, there is a unique solution to the game dilemma in each domain of the entanglement parameter. The maximally entangled limit is studied, and the players’ payoffs are found to equal the average of the payoff matrix independently of their choices. Consequently, any combination of players’ choices is a solution to the dilemma of the game. The nonentangled limits are also studied and found to coincide with the classical mixed-strategy game. Our results are equivalent to those of the noisy schemes of the quantum prisoner’s dilemma game. In our scheme, entanglement can be interpreted as a noise.
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