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Consumer Mistakes In Bertrand Games

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Author Info
BRYAN C. MCCANNON () (Department of Economics, Wake Forest University, Box 7505, Winston-Salem, NC 27109, USA)
Abstract

The identical agent, identical good Bertrand game is associated with prices at marginal cost — the Bertrand Paradox. If consumers make occasional mistakes I show that the standard Bertrand game gives rise to positive profits and prices above marginal cost. Some firms charge low prices to capture the bulk of the sales while others charge high prices selling to mistaken consumers. Furthermore, with free entry the Diamond Paradox arises; a full measure of the firms choose the monopoly price. As a result, the Diamond Paradox arises in an environment with zero search costs by replacing searching costs with searching errors.

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Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 11 (2009)
Issue (Month): 01 ()
Pages: 41-51
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Handle: RePEc:wsi:igtrxx:v:11:y:2009:i:01:p:41-51

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Related research
Keywords: Bertrand game; Bertrand Paradox; consumer mistakes; Diamond Paradox; price dispersion;

Find related papers by JEL classification:
B4 - Schools of Economic Thought and Methodology - - Economic Methodology
C0 - Mathematical and Quantitative Methods - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D7 - Microeconomics - - Analysis of Collective Decision-Making
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics

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This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.