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List Pricing And Pure Strategy Outcomes In A Bertrand-Edgeworth Duopoly

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Author Info
Antón García Díaz
Praveen Kujal ()

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Abstract

Non-existence of a pure strategy equilibrium in a Bertrand-Edgeworth duopoly model is analyzed. The standard model is modified to include a list pricing stage and a subsequent price discounting stage. Both firms first simultaneously choose a maximum list price and then decide to lower the price, or not, in a subsequent discounting stage. List pricing works as a credible commitment device that induces the pure strategy outcome. It is shown that for a general class of rationing rules there exists a sub-game perfect equilibrium that involves both firms playing pure strategies. This equilibrium payoff dominates any other sub-game perfect equilibrium of the game. Further unlike the dominant firm interpretation of a price leader, we show that the small firm may have incentives to commit to a low price and in this sense assume the role of a leader.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we034918.

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Date of creation: Oct 2003
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Handle: RePEc:cte:werepe:we034918

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  1. Dixon, Huw, 1990. "Bertrand-Edgeworth Equilibria when Firms Avoid Turning Customers Away," Journal of Industrial Economics, Blackwell Publishing, vol. 39(2), pages 131-46, December. [Downloadable!] (restricted)
  2. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  3. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March. [Downloadable!] (restricted)
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  4. Vives, Xavier, 1986. "Rationing rules and Bertrand-Edgeworth equilibria in large markets," Economics Letters, Elsevier, vol. 21(2), pages 113-116. [Downloadable!] (restricted)
  5. Sorgard, L., 1995. "Judo Economics Reconsidered: Capacity Limitation, Entry and Collusion," Papers 18/95, Norwegian School of Economics and Business Administration-.
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  6. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 1-26, January. [Downloadable!] (restricted)
  7. Deneckere, Raymond J & Kovenock, Dan, 1992. "Price Leadership," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 143-62, January. [Downloadable!] (restricted)
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    • Raymond Deneckere & Dan Kovenock, 1988. "Price Leadership," Discussion Papers 773, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  8. Allen, Beth & Hellwig, Martin, 1986. "Price-Setting Firms and the Oligopolistic Foundations of Perfect Competition," American Economic Review, American Economic Association, vol. 76(2), pages 387-92, May. [Downloadable!] (restricted)
  9. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn. [Downloadable!] (restricted)
  10. James W. Friedman, 1988. "On the Strategic Importance of Prices versus Quantities," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 607-622, Winter. [Downloadable!] (restricted)
  11. Osborne, Martin J. & Pitchik, Carolyn, 1983. "Price Competition in a Capacity-Constrained Duopoly," Working Papers 83-08, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  12. Maskin, Eric, 1986. "The Existence of Equilibrium with Price-Setting Firms," American Economic Review, American Economic Association, vol. 76(2), pages 382-86, May. [Downloadable!] (restricted)
  13. van Damme, Eric & Hurkens, Sjaak, 1996. "Commitment Robust Equilibria and Endogenous Timing," Games and Economic Behavior, Elsevier, vol. 15(2), pages 290-311, August. [Downloadable!] (restricted)
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  14. Borgers, Tilman, 1992. "Iterated Elimination of Dominated Strategies in a Bertrand-Edgeworth Model," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 163-76, January. [Downloadable!] (restricted)
  15. Charles A. Holt & David T. Scheffman, 1987. "Facilitating Practices: The Effects of Advance Notice and Best-Price Policies," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 187-197, Summer. [Downloadable!] (restricted)
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  17. Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-22, February. [Downloadable!] (restricted)
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  18. Dixon, Huw, 1987. "Approximate Bertrand Equilibria in a Replicated Industry," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 47-62, January. [Downloadable!] (restricted)
  19. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roberts Waddle, 2005. "Strategic Profit Sharing Between Firms: The Bertrand Model," Economics Working Papers we050902, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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