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'Be Nice, Unless it Pays to Fight': A New Theory of Price Determination with Implications for Competition Policy

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  • Boone, Jan

Abstract

This Paper introduces a simple extensive form pricing game. The Bertrand outcome is a Nash equilibrium outcome in this game, but it is not necessarily subgame perfect. The subgame perfect equilibrium outcome features the following comparative static properties. The more similar firms are, the higher the equilibrium price. Further, a new firm that enters the industry or an existing firm that becomes more efficient can raise the equilibrium price. The subgame perfect equilibrium is used to formalize price leadership, joint dominance and efficiency offence.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3342.

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Date of creation: Apr 2002
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Handle: RePEc:cpr:ceprdp:3342

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Keywords: bertrand paradox; efficiency offense; joint dominance; mergers; price leadership;

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References

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