Directed Search and the Bertrand Paradox
AbstractI study a directed search model of oligopolistic competition, extended to incorporate general capacity constraints, congestion effects, and pricing based on ex-post realized demand. I show that as long as any one of these ingredients is present, the Bertrand paradox will fail to hold. Hence, I argue that, despite the emphasis that has been placed by the literature on sellers’ capacity constraints as a resolution to the paradox, the existence of such constraints is only a subcase of a general class of environments where the paradox fails. More precisely, Bertrand’s paradox will not arise whenever the buyers’ expected utility from visiting a specific seller is decreasing in that seller’s realized demand.
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Bibliographic InfoPaper provided by University of California, Davis, Department of Economics in its series Working Papers with number 1221.
Date of creation: 25 Sep 2012
Date of revision:
Directed Search; Bertrand Paradox; Capacity Constraints; Congestion Effects; State-contingent Pricing;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
- NEP-COM-2012-10-06 (Industrial Competition)
- NEP-GTH-2012-10-06 (Game Theory)
- NEP-IND-2012-10-06 (Industrial Organization)
- NEP-MIC-2012-10-06 (Microeconomics)
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