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Bertrand-Edgeworth duopoly with linear costs: A tale of two paradoxes

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  • Prabal Roy Chowdhury

    ()
    (Indian Statistical Institute, New Delhi)

Abstract

Consider a Bertrand-Edgeworth duopoly with linear cost functions. If the firms produce to stock then no Nash equilibrium in pure strategies exists. If, however, the firms produce to order then all subgame perfect Nash equilibria involve the firms charging a price equal to marginal cost.

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Bibliographic Info

Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 04-13.

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Length: 11 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:ind:isipdp:04-13

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Keywords: Bertrand paradox; Edgeworth paradox; linear cost;

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  1. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
  2. Richard E. Levitan & Martin Shubik, 1970. "Price Duopoly and Capacity Constraints," Cowles Foundation Discussion Papers 287, Cowles Foundation for Research in Economics, Yale University.
  3. Tasnadi, Attila, 1999. "Existence of pure strategy Nash equilibrium in Bertrand-Edgeworth oligopolies," Economics Letters, Elsevier, vol. 63(2), pages 201-206, May.
  4. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
  5. Mestelman, Stuart & Welland, Deborah & Welland, Douglas, 1987. "Advance production in posted offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 8(2), pages 249-264, June.
  6. Maskin, Eric, 1986. "The Existence of Equilibrium with Price-Setting Firms," American Economic Review, American Economic Association, vol. 76(2), pages 382-86, May.
  7. Tasnadi, Attila, 1999. "A two-stage Bertrand-Edgeworth game," Economics Letters, Elsevier, vol. 65(3), pages 353-358, December.
  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  9. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
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