On the feedback solution of a differential oligopoly game with capacity adjustment

We revisit the dynamic oligopoly game with capacity accumulation à la Solow-Swan originally investigated by Reynolds (1987, 1991) in order to propose a new and simpler method for characterising in a fully analytical way the feedback solution of the game. Then, we contrast the feedback equilibrium against the corresponding one generated by open-loop information. The striking difference between the two equilibria is to be found in their respective limit properties: while the open-loop equilibrium sustains an infinitely large number of firms surviving with zero profits in the long run, the presence of feedback effects intensifying strategic interaction implies that (i) the number of firms that may survive under feedback information is finite, and (ii) smaller than the socially optimal one. Copyright © 2011 IFAC.