Relative profit maximization and Bertrand equilibrium with convex cost functions
AbstractThe authors study pure strategy Bertrand equilibria in a duopoly in which two firms produce a homogeneous good with convex cost functions, and they seek to maximize the weighted sum of their absolute and relative profits. They show that there exists a range of the equilibrium price in duopolistic equilibria. This range of the equilibrium price is narrower and lower than the range of the equilibrium price in duopolistic equilibria under pure absolute profit maximization, and the larger the weight on the relative profit, the narrower and lower the range of the equilibrium price. In this sense relative profit maximization is more aggressive than absolute profit maximization. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2014-7.
Date of creation: 2014
Date of revision:
Bertrand equilibrium; convex cost function; relative profit maximization;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-21 (All new papers)
- NEP-COM-2014-02-21 (Industrial Competition)
- NEP-IND-2014-02-21 (Industrial Organization)
- NEP-MIC-2014-02-21 (Microeconomics)
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