A Game Theoretical Approach to Production Competition in a Duopoly Market

In this paper, the production game between two duopolists is studied under market uncertainty. This game can be represented as a dynamic decision problem on production strategies in a duopoly market. In the game, two players simultaneously choose their strategies during each period to maximize their expected utilities. Each duopolist can observe the change of the market price of their products, but cannot judge directly whether the other one is cooperative or not because of the existence of other influence factors. To give the optimal cooperation agreement for these enterprises, the "stir-up" pricing strategy is proposed based on a mathematical approach. Moreover, the computational result is presented and a detailed analysis is conducted