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The end of the Bertrand Paradox ?

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  • Marie-Laure Cabon-Dhersin

    ()
    (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan)

  • Nicolas Drouhin

    ()
    (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan)

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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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2010/10079.pdf
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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 10079.

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Length: 25 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mse:cesdoc:10079

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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. repec:hal:wpaper:hal-00709093 is not listed on IDEAS

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