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Dynamic price dispersion in Bertrand–Edgeworth competition

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  • Ching-jen Sun

    (Deakin University)

Abstract

This paper studies a dynamic oligopoly model of price competition under demand uncertainty. Sellers are endowed with one unit of the good and compete by posting prices in every period. Buyers each demand one unit of the good and have a common reservation price. They have full information regarding the prices posted by each firm in the market; hence, search is costless. The number of buyers coming to the market in each period is random. Demand uncertainty is said to be high if there are at least two non-zero demand states that give a seller different option values of waiting to sell. Our model features a unique symmetric Markov perfect equilibrium in which price dispersion prevails if and only if the degree of demand uncertainty is high. Several testable theoretical implications on the distribution of market prices are derived.

Suggested Citation

  • Ching-jen Sun, 2017. "Dynamic price dispersion in Bertrand–Edgeworth competition," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(1), pages 235-261, March.
    • Handle: RePEc:spr:jogath:v:46:y:2017:i:1:d:10.1007_s00182-016-0531-0
    DOI: 10.1007/s00182-016-0531-0
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    1. Niloofar Fadavi, 2022. "Subgame perfect Nash equilibrium for dynamic pricing competition with finite planning horizon," Papers 2208.02842, arXiv.org.

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    More about this item

    Keywords

    Dynamic price dispersion; Demand uncertainty; Capacity constraints;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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