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The end of the Bertrand Paradox ?

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  • Marie-Laure Cabon-Dhersin

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Nicolas Drouhin

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

This paper analyzes 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 implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00542486.

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Date of creation: Oct 2010
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Handle: RePEc:hal:cesptp:halshs-00542486

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Related research

Keywords: Price competition; collusion; convex cost; Bertrand Paradox; capacity constraint; constant returns-to-scale.;

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  1. Prabal Chowdhury & Kunal Sengupta, 2004. "Coalition-proof Bertrand equilibria," Economic Theory, Springer, vol. 24(2), pages 307-324, August.
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Cited by:
  1. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012. "Tacit collusion in a one-shot game of price competition with soft capacity constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00709093, HAL.
  2. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012. "Tacit collusion in a one-shot game of price competition with soft capacity constraints," Working Papers hal-00709093, HAL.

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