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Summary and Discussion of Model Results

Here we report on on the Pareto optimal trigger strategy for the 14 service areas in Table 4. We first explain how we search for the Pareto optimal trigger strategy. Next, we discuss some sub-optimal outcomes and suggest what they mean. These outcomes are demonstrated in Figures 1 through 5. Figure 2 shows the best quantity response curves of each provider in service area A. All of the service areas have similar response curves.

Our model resolves the discounted value statements presented in the previous section. We search for Pareto optimal values over a range of trigger price values (tp) for a given reversion length (T). When the Pareto optimal discounted value is found, at a particular tp, we then run the model again at that tp over a range of different reversion lengths T. We then repeat the process testing discounted values at different tp using the new T. The process is repeated until no higher discounted values can be found. From this procedure we compute the best response quantities, tex2html_wrap_inline287 and tex2html_wrap_inline357 . We also verify the same response quantities using two different root finding functions in Mathematica for Windows. We also view the numerical responses as graphic response curves. Figure 2 is an example of the Pareto optimal response quantities computed for service area A. In the figure the first crosspoint nearest to the axis origin is the best response quantities for each firm. This first crosspoint produces the highest discounted values. The next farthest crosspoint from the origin are the Cournot quantites and they produce lower discounted values. The furthest crosspoint from the origin shows another suboptimal equilibria point where selected quantites produce still lower discounted values.




Judith Molka-Danielsen
Wed Sep 10 14:34:53 CEST 1997