Research On The Impact Of Overconfidence On Quantity Competition And Technology Innovation Decision In A Duopoly

The theory of behavioral science states that classical economics based on complete rational assumption could not explain the firms' behaviors in reality.Irrational behaviors such as overconfidence may lead to decision bias.Under this background,the paper investigates the impact of decision-makers' overconfidence on quantity competition and technology innovation decisions in a duopoly.It is assumed that one manufacturer adopts technology innovation while the other still uses the original technology to produce.Both manufacturers face yield uncertainty and either of them may display overprecision in estimating the actual yield rate.On this basis input quantities and technology innovation decisions of the two manufacturers are examined in three cases respectively: both manufacturers are completely rational(RR model),the manufacturer with technology innovation is overconfident and the other with original technology is completely rational(OR model),and the manufacturer with technology innovation is completely rational and the other with original technology is overconfident(RO).Then the OR model is further extended to the scenario of two-echelon supply chain including the upstream suppliers.The advantages and disadvantages of the two modes of independent innovation and cooperative innovation are compared for the two situations: the supplier knows that the technology innovation manufacturer is overconfident or the supplier does not know that the technology innovation manufacturer is overconfident.The conclusions show that:(1)In the duopoly game model,the production(technical innovation)activity of the overconfident party and the complete rational party increases and decreases,respectively.Under the same conditions,the overconfidence of the technology innovation manufacturer is more conducive to increasing market supply and lowering product prices.Compared with RR model,the expected profit of the completely rational party in OR and RO model inevitably reduces,while the increase/decrease of the overconfident party's expected profit depends on the level of overconfidence,the fluctuation degree of yield rate,and product substitution coefficient.In addition,overconfidence has a negative effect on the overall gains of the duopoly.(2)In OR model with upstream suppliers,the wholesale price that the supplier charges the technology innovation manufacturer in cooperative innovation case is higher than that in independent innovation case regardless of whether the supplier knows his overconfidence or not.The wholesale price the supplier charges the technology innovation manufacturer is irrelevant with the choice of innovation mode.When the supplier knows that the technology innovation manufacturer is overconfident,both the manufacturer's input and technology innovation level in cooperative innovation mode are higher than that in independent innovation case,instead the input of the original technology manufacturer is lower than that in independent innovation case;on the contrary,when the supplier does not know that the technology innovation manufacturer is overconfident,the input of the technology innovation manufacturer in cooperative innovation model is lower than that in independent innovation case,while his technology innovation level is higher than that in independent innovation case.The input of the original technology manufacturer is higher than that in independent innovation case.When the supplier knows that the technology innovation manufacturer is overconfident,the supplier can benefit from cooperation,but the duopoly will suffer a loss;on the other hand,when the supplier does not know that the technology innovation manufacturer is overconfident,both parties involved in the technology innovation cooperation will be impaired,while the profit of the original technology manufacturer is higher than that in independent innovation case.