Asymmetries in Risk and in Risk Attitude: The Duopoly Case

A simple duopoly model is used to show that the profits of both firms can rise under uncertainty if the aversions of the firms toward risk are not too asymmetric nor too pronounced. Unlike the competitive case, the assumptions of strategic substitutes and asymmetric risk attitudes can support equilibria in which one of the firms produce more under uncertainty than under certainty. We also show that it is possible for one firm, but not both, to achieve a level of expected utility that exceeds its certainty benchmark. © 2000 Elsevier Science Inc.