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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, J.
    (Tilburg University, Center for Economic Research)
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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 o¤ence.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-23.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200223

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  10. Julio J. Rotemberg & Garth Saloner, 1984. "A Supergame-Theoretic Model of Business Cycles and Price Wars During Booms," Working papers 349, Massachusetts Institute of Technology (MIT), Department of Economics.
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  14. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  15. Robson, Arthur J, 1983. "Existence of Consistent Conjectures: Comment," American Economic Review, American Economic Association, vol. 73(3), pages 454-56, June.
  16. McAfee, R Preston & Simons, Joseph J & Williams, Michael A, 1992. "Horizontal Mergers in Spatially Differentiated Noncooperative Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 349-58, December.
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