Relative profit maximization and Bertrand equilibrium with quadratic cost functions
AbstractWe study the Bertrand equilibrium in duopoly in which two firms produce a homogeneous good under quadratic cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. We show that there exists a range of the equilibrium prices in duopolistic equilibria. This range of equilibrium prices is narrower and lower than the range of the equilibrium prices in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium prices. In this sense relative profit maximization is more aggressive than absolute profit maximization.
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Bibliographic InfoArticle provided by Oviedo University Press in its journal Economics and Business Letters.
Volume (Year): 2 (2013)
Issue (Month): 3 ()
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Other versions of this item:
- Satoh, Atsuhiro & Tanaka, Yasuhito, 2014. "Relative profit maximization and Bertrand equilibrium with quadratic cost functions," MPRA Paper 55893, University Library of Munich, Germany.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- Schaffer, Mark E., 1989. "Are profit-maximisers the best survivors? : A Darwinian model of economic natural selection," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 29-45, August.
- Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer, vol. 5(1), pages 19-32, January.
- Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers 97-02, C.V. Starr Center for Applied Economics, New York University.
- Satoh, Atsuhiro & Tanaka, Yasuhito, 2014. "Relative profit maximization and Bertrand equilibrium with convex cost functions," Economics Discussion Papers 2014-7, Kiel Institute for the World Economy.
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