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Bertrand Equilibrium in a Differentiated Duopoly

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  • Bester, Helmut

Abstract

This paper studies the stability of price competition in a horizontally differentiated duopoly. The firms' demand is derived from a distribution of consumer preferences. This description of the consumer sector is applicable to a large class of differentiated commodity markets, including spatial competition models. The author shows that there is a (pure) price-setting equilibrium when consumer tastes are sufficiently dispersed. Further conditions on the dispersedness of preferences guarantee uniqueness of the equilibrium. In addition, the author examines the relation between consumer preferences and the competitiveness and efficiency of the equilibrium outcome. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Bester, Helmut, 1992. "Bertrand Equilibrium in a Differentiated Duopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 433-448, May.
  • Handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:433-48
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    Cited by:

    1. Krahmer, Daniel, 2003. "Entry and experimentation in oligopolistic markets for experience goods," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1201-1213, October.
    2. Jan Bouckaert & Hans Degryse, 2002. "Softening Competition by Enhancing Entry: An Example from the Banking Industry," CSEF Working Papers 85, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Boyer, Marcel & Mahenc, Philippe & Moreaux, Michel, 2003. "Entry preventing locations under incomplete information," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 809-829, June.
    4. Bester, Helmut & Petrakis, Emmanuel, 1995. "Price competition and advertising in oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1075-1088, June.
    5. Sinitsyn, Maxim, 2009. "Price dispersion in duopolies with heterogeneous consumers," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 197-205, March.
    6. Carbonell-Nicolau, Oriol, 2011. "On the existence of pure-strategy perfect equilibrium in discontinuous games," Games and Economic Behavior, Elsevier, vol. 71(1), pages 23-48, January.
    7. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
    8. Peeters, Ronald & Strobel, Martin, 2009. "Pricing behavior in asymmetric markets with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 24-32, January.
    9. Peeters,Ronald & Strobel,Martin, 2005. "Differentiated Product Markets: An Experimental Test of Two Equilibrium Concepts," Research Memorandum 020, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    10. repec:eee:transa:v:100:y:2017:i:c:p:1-15 is not listed on IDEAS
    11. Konishi, Hideo, 2005. "Concentration of competing retail stores," Journal of Urban Economics, Elsevier, vol. 58(3), pages 488-512, November.
    12. Xin, Baogui & Chen, Tong, 2011. "On a master-slave Bertrand game model," Economic Modelling, Elsevier, vol. 28(4), pages 1864-1870, July.
    13. Aigner, Rafael & Weber, Katharina, 2017. "The Fehmarn Belt duopoly – Can the ferry compete with a tunnel?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 100(C), pages 1-15.
    14. Pigeard de Almeida Prado, Fernando & Belitsky, Vladimir & Ferreira, Alex Luiz, 2011. "Social interactions, product differentiation and discontinuity of demand," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 642-653.

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