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Bertrand-Edgeworth equilibrium: Manipulable residual demand

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  • Prabal Roy Chowdhury

    () (Indian Statistical Institute, New Delhi)

Abstract

In this paper we seek to provide a resolution of the Edgeworth paradox for the case where firms are free to supply less than the quantity demanded, the residual demand function is {\it manipulable} (a generalization of the proportional one) and prices vary over a grid. We demonstrate that a unique equilibrium in pure strategies exist whenever the number of firms is sufficiently large. Interestingly, the equilibrium involves excess production. Moreover, depending on the parameter values, the `folk theorem' of perfect competition may or may not hold. The results go through even if the firms are asymmetric, or produce to order.

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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 04-15.

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Length: 26 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:ind:isipdp:04-15

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Keywords: Bertrand equilibrium; pure strategy; manipulable residual demand;

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Cited by:
  1. Roy Chowdhury, Prabal, 2008. "Bertrand-Edgeworth equilibrium with a large number of firms," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 746-761, May.

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