Dynamic oligopolies with contingent workforce and investment costs

Cournot oligopolies are examined with two kinds of output adjustment costs, which model the use of contingent work force and additional investments. The best responses of the firms are first determined and the partial adjustment toward best responses is assumed in formulating a dynamic model. The steady states are first characterized and the dynamic behavior of the output trajectories is demonstrated by computer simulation. With small number of firms and low speeds of adjustments the trajectories converge to a steady state. This convergence is lost with increasing number of firms and/or larger speeds of adjustment giving the possibility of cycles and even chaotic behavior.