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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Bibliographic InfoPaper 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.
Length: 25 pages
Date of creation: Sep 2010
Date of revision:
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Price competition; collusion; convex cost; Bertrand Paradox; capacity constraint; constant returns-to-scale.;
Find related papers by JEL classification:
- 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-2010-11-27 (All new papers)
- NEP-COM-2010-11-27 (Industrial Competition)
- NEP-IND-2010-11-27 (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.
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