Tacit collusion in a one-shot game of price competition with soft capacity constraints
AbstractThis 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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Date of creation: 12 Jun 2012
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price competition; tacit collusion; convex cost; Bertrand Paradox; capacity constraint;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-BEC-2012-07-01 (Business Economics)
- NEP-COM-2012-07-01 (Industrial Competition)
- NEP-GTH-2012-07-01 (Game Theory)
- NEP-IND-2012-07-01 (Industrial Organization)
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