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Europhysics Letters (EPL)

Quantum oligopoly

Chi‐Fai Lo, David Kiang

Published Dec 1, 2003• 22 citations
Publisher

Abstract

Based upon a modification of Li et al. 's "minimal" quantization rules ( Phys. Lett. A 306 (2002) 73), we investigate the quantum version of the Cournot and Bertrand oligopoly. In the Cournot oligopoly, the profit of each of the N firms at the Nash equilibrium point rises monotonically with the measure of the quantum entanglement. Only at maximal entanglement, however, does the Nash equilibrium point coincide with the Pareto optimal point. In the Bertrand case, the Bertrand Paradox remains for finite entanglement ( i.e. , the perfectly competitive stage is reached for any N ⩾2), whereas with maximal entanglement each of the N firms will still have a non-zero shared profit. Hence, the Bertrand Paradox is completely resolved. Furthermore, a perfectly competitive market is reached asymptotically for N → ∞ in both the Cournot and Bertrand oligopoly.

DOI
10.1209/epl/i2003-00269-3

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Based upon a modification of Li et al. 's "minimal" quantization rules ( Phys. Lett. A 306 (2002) 73), we investigate the quantum version of the Cournot and Bertrand oligopoly. In the Cournot oligopoly, the profit of each of the N firms at the Nash equilibrium point rises monotonically with the measure of the quantum entanglement. Only at maximal entanglement, however, does the Nash equilibrium point coincide with the Pareto optimal point. In the Bertrand case, the Bertrand Paradox remains for finite entanglement ( i.e. , the perfectly competitive stage is reached for any N ⩾2), whereas with maximal entanglement each of the N firms will still have a non-zero shared profit. Hence, the Bertrand Paradox is completely resolved. Furthermore, a perfectly competitive market is reached asymptotically for N → ∞ in both the Cournot and Bertrand oligopoly.
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.
Abstract This letter explores the quantum version of a Cournot duopoly game with general isoelastic demand and asymmetric production costs by applying Li-Du-Massar's minimal quantization rules, and it especially analyzes the existence region of quantum equilibrium, and the influences of quantum entanglement , difference in marginal costs ( k ) and elasticity of demand on the optimal profits of both firms. The results show that the existence region decreases with γ and k increasing. A larger elasticity of demand can destroy the profits of both firms. If positive γ and k are more favourable to the profits of two firms. If the first firm's profit increases with γ increasing for fixed k , but decreases with k increasing for fixed γ . The second firm's profit increases with k increasing for any fixed γ . As to the influences of γ on the second firm's profit, when k is less than a critical value, it increases with γ increasing, otherwise it decreases with γ increasing for fixed k .
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.
The aim of this paper is to investigate Cournot-type competition in the quantum domain with the use of the Li-Du-Massar scheme for continuous-variable quantum games. We derive a formula which, in a simple way, determines a unique Nash equilibrium. The result concerns a large class of Cournot duopoly problems including the competition, where the demand and cost functions are not necessary linear. Further, we show that the Nash equilibrium converges to a Pareto-optimal strategy profile as the quantum correlation increases. In addition to illustrating how the formula works, we provide the readers with two examples.
A quantum Cournot game whose classical form game has multiple Nash equilibria is examined. Although the classical equilibria fail to be Pareto optimal, the quantum equilibrium exhibits the following two properties: (i) if the measurement of entanglement between strategic variables chosen by the competing firms is sufficiently large, the multiplicity of equilibria vanishes, and (ii) the more strongly the strategic variables are entangled, the more closely the unique equilibrium approaches to the optimal one.