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On Price-Making Contracts And Economic Theory: Rethinking Bertrand And Edgeworth

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  • Robert R. Routledge

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Abstract

A problematic issue in economic theory is the study of price determination. Two distinct approaches to this difficult topic have been taken: (i) in Bertrand competition it is assumed sellers enter the market with a commitment to supply all demand forthcoming from buyers (ii) in Edgeworth competition sellers quote prices with no commitment to supply more than their competitive supply. Both these types of market contract struggle to provide credible pricemaking foundations for perfect competition. In this paper we outline an alternative approach to contract formation with combines Bertrand’s [1883] insight regarding price competition with Edgeworth’s [1881] notion of recontracting. The result is that we can provide a price-making analogue of the Debreu-Scarf [1963] showing that in large markets price-making contracts are ‘close’ to the competitive equilibrium.

Suggested Citation

  • Robert R. Routledge, 2012. "On Price-Making Contracts And Economic Theory: Rethinking Bertrand And Edgeworth," Cahiers d’économie politique / Papers in Political Economy, L'Harmattan, issue 63, pages 171-188.
  • Handle: RePEc:cpo:journl:y:2012:i:63:p:171-188
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    Keywords

    equilibrium; existence; core convergence; price-taking behaviour; market contracts.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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