Strategy Analysis Of Duopoly Competition In Hotelling Model

Duopoly competition, as the important form of market competition, contains the main contents of game theory. It is not only the jumping-off point of game theory but also the primary application. With the modern economic competition developing, the competition strategy needs amelioration and update as well as the research tools. The introduction of better approaches can help the corporation obtain preferable strategy. It can also be applied wider in practice.The paper, on the basis of the classical theory about competition strategy, concentrates on the pricing and investment strategy in different markets, in virtue of the game theory, information economics, industrial organization theory and real option approach.The main contents and conclusions are summarized as follows: First, company's pricing strategy is studied in a two-period duopoly model with business practice of offering discounts to new customers in markets with switching costs, and equilibrium result shows how the existence of switching costs affects the price in both period. Then, such a situation is considered in which there is a duopoly with infinitely lived firms and overlapping generations of consumers where both firms can set different price for their previous customers and their new customers, and equilibrium results in two cases and the effect of the consumer patience on the price are analyzed. At the same time, the evolution trend of market shares affected by firm patience is obtained. Finally, Taking the place of discrete model into a continuous time one, the investment method in real option theory is applied to evaluate the new entrant's strategy to invest respectively in linear market and non-linear one. Furthermore, the effect of the discount offered to new consumer on investment threshold has been displayed through figures.