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Tacit collusion in a one-shot game of price competition with soft capacity constraints

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  • Marie-Laure Cabon-Dhersin

    () (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - Université de Rouen : EA4702)

  • Nicolas Drouhin

    () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

This paper analyses price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game generating a soft capacity constraint and implying a convex short term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game i.e. the unique payoff-dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00709093.

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Date of creation: 12 Jun 2012
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Handle: RePEc:hal:cesptp:hal-00709093

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Related research

Keywords: price competition; tacit collusion; convex cost; Bertrand Paradox; capacity constraint;

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  8. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2010. "The end of the Bertrand Paradox ?," Documents de travail du Centre d'Economie de la Sorbonne 10079, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  9. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
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  22. Todd R. Kaplan & David Wettstein, 2000. "The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition," Spanish Economic Review, Springer, vol. 2(1), pages 65-71.
  23. 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.
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