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

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  • 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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Bibliographic Info

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

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