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Equilibrium existence with spillover demand

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  • Bos, Iwan
  • Vermeulen, Dries

Abstract

Non-existence of a pure-strategy Nash equilibrium is a persistent problem in oligopoly models where sellers compete in prices and quantities. At the heart of this problem are unserved customers who are still willing to visit a less preferred supplier (i.e., so-called spillover demand). This note develops a consumer behavior model with spillover demand. Within this model there is a class of demand specifications for which a pure-strategy Nash equilibrium exists. This price-quantity equilibrium is shown to coincide with the Bertrand price equilibrium.

Suggested Citation

  • Bos, Iwan & Vermeulen, Dries, 2021. "Equilibrium existence with spillover demand," Economics Letters, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:ecolet:v:208:y:2021:i:c:s0165176521003384
    DOI: 10.1016/j.econlet.2021.110061
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    References listed on IDEAS

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    Cited by:

    1. Heywood, John S. & Li, Dongyang & Ye, Guangliang, 2023. "Private provision of price excludable public goods by rivals," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 291-307.
    2. Yousefimanesh, Niloofar & Bos, Iwan & Vermeulen, Dries, 2023. "Strategic rationing in Stackelberg games," Games and Economic Behavior, Elsevier, vol. 140(C), pages 529-555.

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    More about this item

    Keywords

    Bertrand–Edgeworth competition; Edgeworth paradox; Oligopoly theory; Price-quantity competition; Spillover demand;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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