Dynamic Models of Competition with Endogenous Network Formation: The Case of Constant Output

Abstract

The paper examines discrete-time network models of competition with a finite planning horizon. Firms produce a homogeneous product in constant quantities and sell it in a common market. In a nonterminal period, the behavior of each firm is characterized by a multicomponent profile that includes, among other things, the amount of investment and the structure of bilateral links with partner firms. The latter affects the technological state of the firm and allows it to reduce its current costs. The endogenous structure of partner firms is described by a network. For the models under study, an open-loop Nash equilibrium is characterized.