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The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition

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  • Todd R. Kaplan

    ()
    (Department of Economics, Ben-Gurion University of the Negev, P.O.B. 653, Beer-Sheva, Israel 84105)

  • David Wettstein

    ()
    (Department of Economics, Ben-Gurion University of the Negev, P.O.B. 653, Beer-Sheva, Israel 84105)

Abstract

We analyze the Nash equilibria of a standard Bertrand model. We show that in addition to the marginal-cost pricing equilibrium there is a possibility for mixed-strategy equilibria yielding positive profit levels. We characterize these equilibria and find that having unbounded revenues is the necessary and sufficient condition for their existence. Hence, we demonstrate that under realistic assumptions the only equilibrium is marginal-cost pricing.

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Bibliographic Info

Article provided by Springer in its journal Spanish Economic Review.

Volume (Year): 2 (2000)
Issue (Month): 1 ()
Pages: 65-71

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Handle: RePEc:spr:specre:v:2:y:2000:i:1:p:65-71

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Related research

Keywords: Bertrand; price competition;

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Cited by:
  1. Steffen Hoernig, 2007. "Bertrand Games and Sharing Rules," Economic Theory, Springer, vol. 31(3), pages 573-585, June.
  2. Todd R. Kaplan & Shmuel Zamir, 2011. "Multiple Equilibria in Asymmetric First-Price Auctions," Discussion Paper Series dp591, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  3. Alejandro Saporiti & German Coloma, 2009. "Bertrand's price competition in markets with fixed costs," RCER Working Papers 549, University of Rochester - Center for Economic Research (RCER).
  4. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012. "Tacit collusion in a one-shot game of price competition with soft capacity constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00709093, HAL.
  5. Hoernig, Steffen, 2005. "Bertrand Equilibria and Sharing Rules," CEPR Discussion Papers 4972, C.E.P.R. Discussion Papers.
  6. repec:hal:wpaper:hal-00709093 is not listed on IDEAS
  7. Beschorner, Patrick F. E., 2003. "Risk classification and cream skimming on the deregulated German insurance market," W.E.P. - Würzburg Economic Papers 37, University of Würzburg, Chair for Monetary Policy and International Economics.
  8. Kaplan, T.R. & Luski, I. & Wettstein, D., 2000. "Innovative Activity and Sunk Cost," Discussion Papers 0006, Exeter University, Department of Economics.
  9. Ludovic Julien, 2011. "A note on Stackelberg competition," Journal of Economics, Springer, vol. 103(2), pages 171-187, June.
  10. Hoernig, Steffen H., 2002. "Mixed Bertrand equilibria under decreasing returns to scale: an embarrassment of riches," Economics Letters, Elsevier, vol. 74(3), pages 359-362, February.
  11. Routledge, Robert R., 2010. "Bertrand competition with cost uncertainty," Economics Letters, Elsevier, vol. 107(3), pages 356-359, June.

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