Dynamic Bertrand competition with intertemporal demand
AbstractIn the text-book model of dynamic Bertrand competition, competing firms meet the same demand function every period. This is not a satisfactory model of the demand side if consumers can make intertemporal substitution between periods. Each period then leaves some residual demand to future periods, and consumers who observe price under-cutting may correctly anticipate en ensuing price war and therefore postpone their purchases. Accordingly, the interaction between the firms no longer constitutes a repeated game, and hence falls outside the domain of the usual Folk theorems. We analyze collusive pricing in such situations, and study cases when consumers have perfect and imperfect foresight and varying degrees of patience. It turns out that collusion against patient and forward-looking consumers is easier to sustain than collusion in the text-book model.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 493.
Length: 21 pages
Date of creation: 01 Mar 2002
Date of revision: 15 Feb 2005
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Bertrand competition; Coase conjecture; dynamic oligopoly; stochastic games;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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