Using system dynamics to analyse interactions in duopoly competition

This article introduces non-linear dynamics to assess the interactions in duopoly competition between two rivals. The generic competition is considered here to be the competition for quality between two consumer durable products. The authors have used a system dynamics approach to develop the model of interactions and simulate the behaviour over time. The outcomes of several hundred simulations have shown that the recognition and implementation lags in quality improvement strongly influence the qualitative behaviour of the system. When the speed of adaptation to customer demand reaches a certain value, a Hopf bifurcation occurs and the system converges into a limit cycle. Quasi-periodicity and chaos emerge when further increasing the speed of the response. Instead of tending to equilibrium around an optimal quality value the model exhibits complex counter-intuitive behaviours.