The end of the Bertrand Paradox ?
AbstractThis 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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Date of creation: Oct 2010
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Price competition; collusion; convex cost; Bertrand Paradox; capacity constraint; constant returns-to-scale.;
Other versions of this item:
- 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.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-COM-2010-12-11 (Industrial Competition)
- NEP-GTH-2010-12-11 (Game Theory)
- NEP-IND-2010-12-11 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Prabal Chowdhury & Kunal Sengupta, 2004. "Coalition-proof Bertrand equilibria," Economic Theory, Springer, vol. 24(2), pages 307-324, August.
- Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012.
"Tacit collusion in a one-shot game of price competition with soft capacity constraints,"
- Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012. "Tacit collusion in a one-shot game of price competition with soft capacity constraints," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) hal-00709093, HAL.
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